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Someone just issued 3-year bonds that make annual coupon payments of $60
Someone just issued 3-year bonds that make annual coupon payments of $60. Suppose
you purchased one of these bonds at par value ($1,000) when it was issued. Right after your
purchase, market interest rates jumped, and the (interest rate) on your bond rose to 7
percent. What is the new price of you bond?
Expert Solution
New price of the bond=present value of all future cash flows
=Coupon*present valu annuity factor(7%, 3 years)+redemption price*present value inflow factor(7%, 3 years)
=60*2.6243+1000*0.8163= 157.4590+816.2979=$973.75
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