Find the price of a corporate bond maturing in 5 years that has a 5% coupon (annual payments), a $1,000 face value, and an AA rating. A local newspaper's financial section reports that the yields on 5 year bonds are: AAA = 6%, AA = 7%, and A = 8%.

$917.996

Explanation:

First, we calculate price:

Price = 5% * 1000 = $50.

At the fifth year, Price = $1000 + $50 = $1050

The price of the Corporate bond is given as:

50/(1+.07) + 50/(1+.07)² + 50/(1+.07)³ + 50/(1+.07)⁴ + 1050/(1+.07)^5

= 917.9960512810481

=$917.996 Approximated

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