(Need for Next question) (16.) Dizzy Corporation’s 10-year semiannual bond beari
ID: 2773684 • Letter: #
Question
(Need for Next question)
(16.) Dizzy Corporation’s 10-year semiannual bond bearing a coupon rate of 12% is currently selling for $950. Given this information, which of the following is the correct valuation equation for this bond?
C. $950 = 60 [PVIFA(r/2, 20)] + 1,000 [PVIF(r/2, 20)]
To find the yield-to-maturity of the bond in Question #16 by trial and error, which number should you pick as your first try?
A. 13%
B. 12%
C. 11%
D. Any number (like one of your favorite lotto numbers).
C. $950 = 60 [PVIFA(r/2, 20)] + 1,000 [PVIF(r/2, 20)]
To find the yield-to-maturity of the bond in Question #16 by trial and error, which number should you pick as your first try?
A. 13%
B. 12%
C. 11%
D. Any number (like one of your favorite lotto numbers).
Explanation / Answer
Bond prices and interest rates have inverse relationship. If the required rate in market increase bond price will decrease and vice-versa.
A-13%, Since, bond is selling at discount and coupon rate is less than required rate 13%.
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