Problem: You are considering purchasing a bond at the end of this year. The bond has a coupon rate of 10.5%, interest payments are made annually, and the bond matures in 20 years. If your required pretax rate of return is 14%.
a. What is the maximum price you would be wiling to pay for a 20-year, 10.5% bond?
b. Assume the bond pays interest annually. Would you purchase the bond if its current market price is $750?