Ethan owns a 1000 par value 10% bond with semiannual coupons. The bond will mature for 1000 at the end of 10 years. Current yield rates are 7% compounded semiannually. Ethan has decided that he would rather own an 8-year bond, and so he will sell the bond he owns and use all of the proceeds to purchase a 6% bond with semiannual coupons, maturing at par at the end of 8 years. Calculate the par value of the 8-year bond.

Ethan owns a 1000 par value 10% bond with semiannual coupons. The bond will mature for 1000 at the end of 10 years. Current yield rates are 7% compounded semiannually. Ethan has decided that he would rather own an 8-year bond, and so he will sell the bond he owns and use all of the proceeds to purchase a 6% bond with semiannual coupons, maturing at par at the end of 8 years. Calculate the par value of the 8-year bond.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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