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Calculate the Fair Market Value (FMV) for a 5-year bond with a coupon rate of 8%.   Bonds...

Calculate the Fair Market Value (FMV) for a 5-year bond with a coupon rate of 8%.   Bonds with similar risk have Yields-to-Maturity (YTMs) of 7%.   For simplicity, assume annual cash flows.

Select one:

a. $1,000 to $1,100

b. More than $1,100

c. $800 to $900

d. $900 to $1000

e. Less than $800

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Answer #1

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Answer: a. $1,000 to $1,100

Since YTM is less than Coupoun rate, Price of the bond will be greater than face value ($1000),

However as the difference is small (only 1%), it is 99.99% likely to be in the range of 1000-1100.

Proof:

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