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BA/350 BA/350 ASSIGNMENT CH6 PROBLEM 19 -ANSWER KEY

BA/350 BA/350 ASSIGNMENT CH6 PROBLEM 19 -ANSWER KEY
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BA/350 ASSIGNMENT CH6 PROBLEM 19

Your friend Marvin is excited because he believes he's found an investment bargain. A broker at QuickCash Investments has offered him an opportunity to buy a bond issued by Galveston Galleries Inc. at a very . attractive price. The 30-year bond was issued 10 years ago at a face value of $1,000, paying a coupon rate of 8%. Interest rates have risen recently driving bond prices down, but most economists think they'll fall again soon driving prices back up. That makes Marvin and his broker think this bond may be a real money maker if he buys now, holds for a year or two, and then sells. The bonds of companies that were similar to Galveston at the time its bond was issued are now yielding 12%. Galveston's bond is selling at $300 which the broker claims is a fantastic bargain. Marvin knows you're a finance major and has asked your opinion of the opportunity. How would you advise him?

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