?(Yield to? maturity)?The Saleemi? Corporation\'s ?$1,000 bonds pay 9 percent in
ID: 2618020 • Letter: #
Question
?(Yield to? maturity)?The Saleemi? Corporation's ?$1,000 bonds pay 9 percent interest annually and have 14 years until maturity. You can purchase the bond for ?$1,055.
a. What is the yield to maturity on this? bond?
b. Should you purchase the bond if the yield to maturity on a? comparable-risk bond is 8 ?percent?
a. The yield to maturity on the Saleemi bonds is ____?%. ? (Round to two decimal? places.)
b. You should/should not purchase the bonds because your yield to maturity on the Saleemi bonds is greater/lesser than the one on a comparalbe risk bond (Select the drop-down menus *in bold*)
Explanation / Answer
a.
YTM = c + (F - P)/n / (F + P) / 2
= 90 + (1000 - 1055) /14 / (1000+1055)/2 = (90 - 3.93) / 1027.5 = 8.38%
b.
You should purchase the bonds because your yield to maturity on the Saleemi bonds is greater than the one on a comparalbe risk bond with 8%.
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