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An investor has two bonds in his portfolio that both have a face value of $1,000 and pay a 8% annual coupon. Bond L matures in 19 years, while Bond S matures in 1 year.
Assume that only one more interest payment is to be made on Bond S at its maturity and that 19 more payments are to be made on Bond L.
1. What will the value of the Bond L be if the going interest rate is 9%? Round your answer to the nearest cent.
2. What will the value of the Bond S be if the going interest rate is 9%? Round your answer to the nearest cent.
What methods of cost estimation rely primarily on historical data? Describe the problems an unwary user may encounter with the use of historical cost data.
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