Smith Company issued a 7 – year bond that pays a coupon of 28% two years ago. The expected return on similarly rated bonds is 25.0%. Use the information above to answer the following; compute the duration of bond. (Assume a face value of GH 1,000.00).
a. What is the intrinsic value of the bond?
b. If Smith is currently priced at GHS 1,021.00, what recommendation would you make to your clients who have long position on Smith?
c. Comment on the market efficiency