What is the theoretical value of these bonds

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Reference no: EM131873956

The bonds of Copo Inc. are rated A+ and have 11 years until maturity. The bonds have a coupon rate of 4%, paid semi-annually. The bonds are rated A+.

Currently, the T-bill rate is 3%. The default risk premium associated with the Copo bonds is 50 bps, as is the liquidity premium. The maturity risk premium is 1%. The real risk-free rate is 2%.

What is the theoretical value of 1 of these bonds?

$1,000.00

$916.17

$605.11

$1,251.48

If the bond is selling in the secondary market for $912, is it overvalued or undervalued, and what action should you take?

overvalued; sell it

overvalued; buy it

undervalued; sell it

undervalued; buy it

Reference no: EM131873956

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