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A bond issued by the Harris Corporation has a coupon rate of 7 1/2 percent. It matures in 2035.
a. If you require an 8 percent rate of return for a bond of this type, what is the maximum price you are willing to pay?
b. What would be the maximum price that you would be willing to buy it at if the required rate of return was 11 percent? Was 6 percent? What is the percent change in price given the changes in interest rates?
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Illustrates the potential consequences of a business deciding to apply a single technique to all corporate investment decisions.
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If the bond (7% coupon rate, annual interest payments, maturing in three years) has a market value of $970, what is this bond's yield to maturity?
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Assume 1 year has gone by and it is now Jan 1, 2012. Further assume you bought the bond for the price calculated in question 2 (Bond price $973.27) on Jan 1, 2011. Since then, market interest rates (and the discount rate) for this type of bond increa..
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