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If today is October 2002, what is the value of the following bond? An IBM Bond...

If today is October 2002, what is the value of the following bond? An IBM Bond pays $115 every Sept for 5 years. In Sept 2007 it pays an additional $1000 and retires the bond. The bond is rated AAA (WSJ AAA YTM is 7.5%)

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Answer #1

Using financial calculator BA II Plus - Input details:

#

I/Y = Rate or yield / frequency of coupon in a year =

             7.500000

PMT = Payment = Coupon / frequency =

-$115.00

N = Total number of periods = Number of years x frequency =

5

FV = Future Value =

-$1,000.00

CPT > PV = Present Value of the instrument Bond=

$1,161.84

We are using AAA - YTM = 7.5 percent which is given in question.

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