Consider a 8-year corporate bond issued by Vandalay Industries. The bond has a face value of $1,000, and has an annual coupon rate of 6.14%. The yield to maturity of the bond is 5.02%. What is the fair price for the bond today?

Consider a 8-year corporate bond issued by Vandalay Industries. The bond has a face value of $1,000, and has an annual coupon rate of 6.14%. The yield to maturity of the bond is 5.02%. What is the fair price for the bond today?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 4MC

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Concept explainers

Market Efficiency

Market efficiency refers to the market's ability to provide investors with all available information about investment options for buying and selling securities. Market efficiency reflects the true value of securities without undervaluing or overvaluing them. When the quality and quantity of information increase, the market becomes more efficient, allowing it to reduce arbitrage and obtain higher market returns from investment. In a well-functioning market, everyone receives all information completely and immediately at no cost. It opens up a plethora of opportunities for investors to access various investment options.

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Consider a 8-year corporate bond issued by Vandalay Industries. The bond has a face
value of $1,000, and has an annual coupon rate of 6.14%. The yield to maturity of
the bond is 5.02%. What is the fair price for the bond today?
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