Question

Bond X is a noncallable and has 20 years to maturity, a 9% annual coupon, and a $1000 par value. Your required rate of return on bond X is 10%; and if you buy it, you plan to hold it for 5 years. You and the market have expectations that in 5 years, the yield to maturity for a 15 year bond with similar risk will be 8.5%. How much should you be willing to pay for bond X?

Answer 1

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