Use the Information for the Question(s)below

question 80

Multiple Choice

Use the information for the question(s) below.
-A firm issues 10-year bonds with a coupon rate of 6.5%, paid semi-annually. The credit spread for this firm's 10-year debt is 0.8%. New 10-year Treasury bonds are being issued at par with a coupon rate of 5%. What should the price of the firm's outstanding 10-year bonds be per $100 of face value?

• A)$98.27
• B)$100.86
• C)$105.26
• D)$97.28

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Definitions:

Variable Substitution

The process of replacing a variable in an equation or expression with a specific value.

Exponentiation

A mathematical operation involving two numbers, the base and the exponent, where the base is multiplied by itself as many times as indicated by the exponent.

System of Equations

A set of two or more equations with the same set of unknowns, which are solved simultaneously.

Variable Substitution

Replacing a variable in an equation or expression with its corresponding value.