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BA350 Problem 5.1 ,5.4, 5.9, 5.13 Solution [[[**** 100% Correct Solution With step by step Calculation *****]]]

Problem 5.1 Jackson Corporation's bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate in 8%. The bonds have a yield to maturity of 9%. What is the current market price of these bonds?

5.4 The real risk-free rate of interest is 4%. Inflation is expected to be 2% this year and 4% during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities? What is the yield on 3 year Treasury securities?

5.9 The Garraty Company has two bond issues outstanding. Both bonds pay $100 annual interest plus $1,000 at maturity. Bond L has a maturity of 15 years, and Bond S has a maturity of 1 year. - What will be the value of each of these bonds when the going rate of interest is (1) 5%, (2) 8%, and (3) 12%? Assume that there is only one more interest payment to be made on bond S. - Why does the longer-term (15 year) bond fluctuate more when interest rates change than does the short term bond (1 year)?

5.13 You just purchased a bond that matures in 5 years. The bond has a face value of $1,000 and has an 8% annual coupon. The bond has a current yield of 8.21%. What is the bond's yield to maturity?

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