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Determine the current market prices of the following $1,000 bonds if the comparable rate is 10 percent and answer the following questions.
XY 5 1/4 percent (interest paid annually) for 20 years
AB 14 percent (interest paid annually) for 20 years
a. Which bond has a current yield that exceeds the
yield to maturity?
b. Which bond may you expect to be called? Why?
c. If CD, Inc. has a bond with a 5 1/4 percent coupon
and a maturity of 20 years but which was lower
rated, what would be its price relative to the XY,
Inc bond? Explain.
Second Law
Often referring to the Second Law of Thermodynamics, which states that the total entropy of a closed system can never decrease over time.
Thermodynamics
The branch of physics that deals with the relationships between heat, work, temperature, and energy.
Entropy
A measure of the disorder or randomness in a system, often associated with the Second Law of Thermodynamics, indicating the direction of spontaneous processes.
Energy
The quantitative property that must be transferred to an object in order to perform work on, or to heat, the object.
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