Intel Corporation has an outstanding issue of $1,000-par-value bonds with a 12% coupon interest rate. The issue pays interest semi-annually and has 16 years remaining to its maturity date. If bonds of similar risk are currently earning a 10% rate of return, how much should the Intel Corporation bond sell for today? Describe the two possible reasons why similar-risk bonds are currently earning a return below the coupon interest rate on the Complex Systems bond. If the required return were at 12% instead of 10%, what would the current value of Intel Corporations’ bond be? Contrast this finding with your findings in part a) and explain.

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Intel Corporation has an outstanding issue of $1,000-par-value bonds with a 12% coupon interest rate. The issue pays interest semi-annually and has 16 years remaining to its maturity date.

  1. If bonds of similar risk are currently earning a 10% rate of return, how much should the Intel Corporation bond sell for today?
  2. Describe the two possible reasons why similar-risk bonds are currently earning a return below the coupon interest rate on the Complex Systems bond.
  3. If the required return were at 12% instead of 10%, what would the current value of Intel Corporations’ bond be? Contrast this finding with your findings in part a) and explain.
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