Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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### Bond Pricing Scenario

A company issues a ten-year bond at par with a coupon rate of 6.6% paid semi-annually. The Yield to Maturity (YTM) at the beginning of the third year of the bond (8 years left to maturity) is 8.6%. What is the new price of the bond?

#### Multiple Choice Options:
- **A.** $1,240
- **B.** $886
- **C.** $1,063
- **D.** $1,000

Make your choice based on the provided information. The solution requires understanding the relationship between the coupon rate, yield to maturity, and the bond's price. 

### Detailed Explanation:
To determine the new price of the bond, you need to discount the bond’s future cash flows (both coupon payments and principal repayment) at the new Yield to Maturity (YTM) rate.
Transcribed Image Text:### Bond Pricing Scenario A company issues a ten-year bond at par with a coupon rate of 6.6% paid semi-annually. The Yield to Maturity (YTM) at the beginning of the third year of the bond (8 years left to maturity) is 8.6%. What is the new price of the bond? #### Multiple Choice Options: - **A.** $1,240 - **B.** $886 - **C.** $1,063 - **D.** $1,000 Make your choice based on the provided information. The solution requires understanding the relationship between the coupon rate, yield to maturity, and the bond's price. ### Detailed Explanation: To determine the new price of the bond, you need to discount the bond’s future cash flows (both coupon payments and principal repayment) at the new Yield to Maturity (YTM) rate.
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