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Question 1 Hope bonds have a coupon rate of 7% and mature in 7 years. Assuming semi-annual coupons with face value of $100. What is the value of this bond? Similar bonds yield 6% a. The value of this bond is $105.65 b. The value of this bond is $106.58. C. The value of this bond is $94.5-4 d. The value of this bond is $39.54.

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Answer #1

Coupon Amount = 100*7%*1/2

= $3.5

Value of bond is equal to the present value of all interest payments and principal Amount

Value of Bond = 3.5*PVAF(3%, 14 Periods) + 100*PVF(3%, 14 Periods)

=3.5*11.296 +100*0.661

=$105.65(approx.)

Hence the answer is a.

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