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Bond Valuation. Assuming that the bond in Problem 19 matures in five years, what would be the market prices under the various required market interest rate changes?

Problem 19

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Bond Valuation. A tax-exempt bond was recently issued at an annual 8 percent coupon rate and matures 20 years from today.The par value of the bond is $1,000.

a.If required market rates are 8 percent, what is the market price of the bond?

b.If required market rates fall to 5 percent, what is the market price of the bond?

c.If required market rates rise to 15 percent, what is the market price of the bond?

d.At what required market rate (5, 8, or 15 percent) does the above bond sell at a discount? At a premium?

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