A bond has 5 years until maturity and a coupon rate of 12% payable annually. and the market interest rate is 8% compounded annually.

a. What is the current market price of the bond? Bond Price:

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b. What is the current yield? Current Yield: %

c. Suppose one year from now, you need to sell this bond because of liquidity reasons. Suppose the yield to maturity is 6% when you sell the bond, what will the price be? Selling Price: $

d. What will be your before tax rate of return? Rate of return; %

e. If inflation rate is 3%, what is your before tax real rate of retur? Real rate of retur:

f. Explain why an investor might be indifferent between buying a 12% bond and a 6% bond


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