Suppose there is a bond in abc company that that pays coupons of 8.5%, and suppose that these coupons are paid annually.
suppose the face value of the abc bond is $1000 and the maturity is 11 years.
a) if the appropriate discount rate for this bond is 6%, what would you be willing to pay for abc’s bond?
b) if a comparable company, xyz, has a 7.0% coupon bond with a maturity of 9 years and a face value of 1000, and that bond is trading in the market for $994.50, what would you be willing to pay for abc’s bond?
c) suppose you find that the true fair value for abc bond is $1200.00, but you see that the bond trading for $1051.00, what would you recommend?