(Related to Checkpoint 9.2 and Checkpoint 9.3) (Bond valuation relationships) Th
ID: 2781099 • Letter: #
Question
(Related to Checkpoint 9.2 and Checkpoint 9.3) (Bond valuation relationships) The 18-year, $1,000 par value bonds of Waco Industries pay 9 percent interest annually. The market price of the bond is $875, and the markets required yield to maturity on a comparable-risk bond is 12 percent. a. Compute the bond's yield to maturity. b. Determine the value of the bond to you given the market's required yield to maturity on a comparable-risk bond. c. Should you purchase the bond? a. What is your yield to maturity on the Waco bonds given the current market price of the bonds? % ( Round to two decimal places.) b. Determine the value of the bond to you given the market's required yield to maturity on a comparable-risk bond. c. Should you purchase the bond?Explanation / Answer
a. FV = 1000 N = 18 PV = -875 PMT = 90
use rate function in Excel
yield to maturity = 10.58%
b. use rate as12% and use PV function in Excel
value of the bond = 782.51
c. so should not purchase since it is overvalued
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