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Assume the following information for an existing bond that provides annual coupon payments:
Par value = $1,000 Coupon rate = 11% Maturity = 4 years Required rate of return by investors = 11%
a. What is the present value of the bond? b. If the required rate of return by investors were 9 percent, what would be the present value of the bond?
c. What is the present value of the bond if it now becomes a zero coupon bond (does not coupon) and the discount rate were 14 percent instead of 11 percent?
What does the term Sustainable Growth Rate mean? Would the amounts you have calculated in parts b. to d. equal the Sustainable Growth Rate for the firm?
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