120. You are considering investing in a security that matures in 10 years with a par value of $1,000. During the first five years, the security has an 8 percent coupon with quarterly payments (that is, you receive $20 a quarter for the first 20 quarters). During the remaining five years the security has a 10 percent coupon with quarterly payments (that is, you receive $25 a quarter for the second 20 quarters). After 10 years (40 quarters) you receive the par value. Another 10-year bond has an 8 percent semiannual coupon (that is, the coupon payment is $40 every six months). This bond is selling at its par value, $1,000. This bond has the same risk as the security you are thinking of purchasing. Given this information, what should be the price of the security you are considering purchasing? a. $ 898.65 b. $1,060.72 c. $1,037.61 d. $ 943.22 e. $1,145.89
120. You are considering investing in a security that matures in 10 years
with a par value of $1,000. During the first five years, the security
has an 8 percent coupon with quarterly payments (that is, you receive
$20 a quarter for the first 20 quarters). During the remaining five
years the security has a 10 percent coupon with quarterly payments (that
is, you receive $25 a quarter for the second 20 quarters). After 10
years (40 quarters) you receive the par value.
Another 10-year bond has an 8 percent semiannual coupon (that is, the
coupon payment is $40 every six months). This bond is selling at its
par value, $1,000. This bond has the same risk as the security you are
thinking of purchasing. Given this information, what should be the
price of the security you are considering purchasing?
a. $ 898.65
b. $1,060.72
c. $1,037.61
d. $ 943.22
e. $1,145.89
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