rate of return
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Free InquirySuppose there are two bonds you are considering:
Bond A
Bond B
Maturity (years)
15
25
Annual Coupon rate (%)
6
4
Par Value
1000
1000
a. If both bonds had a required rate of return of 5%, what would the bonds’ prices be?
b. Re-calculate the prices of the bonds if the required return falls to 7%. Could you explain why the price increases or decreases given this change in required return?
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