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Question - Rick bought a 30-year old bond when it was issued by Macroflex Corporation 15 years ago. The bond has $1,000 face value and a coupon rate equal to 7% and the coupon is paid every six month. If the yield on similar-risk investments is 8%.
a) What is the current market value (price) of the bond?
b) Suppose the interest rate levels rise to the point where such bonds now yield 10%. What would be the price of Macroflex bond?
c) At what price would Macroflex bonds sell if the yield on them was 5%?
d) What do you observe regarding the relationship bet interest rate (YTM) bond's price?
e) What do you observe regarding the relationship between coupon, YTM, and the bond's price?
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