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A 10-year bond with a face value of 1000 dollars is redeemable at par, pays coupons at 6 percent per 6 months, and has a yield rate of 8.4 percent convertible semiannually. Suppose the book value immediately after the payment of the 7th coupon is equal to the price of a perpetuity (at the time of the 7th coupon) that will start making annual payments one year after the 7th coupon. If the perpetuity earns interest at 3.8 percent effective, how large is each perpetuity payment? Answer= dollars.

A 10-year bond with a face value of 1000 dollars is redeemable at par, pays coupons at 6 percent per 6 months, and has a yield rate of 8.4 percent convertible semiannually. Suppose the book value immediately after the payment of the 7th coupon is equal to the price of a perpetuity (at the time of the 7th coupon) that will start making annual payments one year after the 7th coupon. If the perpetuity earns interest at 3.8 percent effective, how large is each perpetuity payment? Answer= dollars.

Essentials Of Investments
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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A 10-year bond with a face value of 1000 dollars is redeemable at par, pays coupons at 6 percent per 6 months, and has a yield rate of 8.4 percent convertible semiannually. Suppose the book value immediately after the payment of the 7th coupon is equal to the price of a perpetuity (at the time of the 7th coupon) that will start making annual payments one year after the 7th coupon. the perpetuity earns interest at 3.8 percent effective, how large is each perpetuity payment? Answer= dollars.
Transcribed Image Text:A 10-year bond with a face value of 1000 dollars is redeemable at par, pays coupons at 6 percent per 6 months, and has a yield rate of 8.4 percent convertible semiannually. Suppose the book value immediately after the payment of the 7th coupon is equal to the price of a perpetuity (at the time of the 7th coupon) that will start making annual payments one year after the 7th coupon. the perpetuity earns interest at 3.8 percent effective, how large is each perpetuity payment? Answer= dollars.
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