P9-17 (similar to) Question Help Related to Checkpoint 9.2 and Checkpoint 9.3) (
ID: 2802321 • Letter: P
Question
P9-17 (similar to) Question Help Related to Checkpoint 9.2 and Checkpoint 9.3) (Bond valuation relationships) The 12-year, $1,000 par value bonds of Waco Industries pay 7 percent interest annually. The market price of the bond is $1,105, and the market's required yield to maturity on a comparable-risk bond is 4 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.)Explanation / Answer
a)
b)
c)
Bond value is higher than bond price. I should purchase the bond.
1 Face value (FV) $ 1,000 2 Coupon rate 7.00% 3 Number of compounding periods per year 1 1*2/3 Interest per period (PMT) $ 70.00 Bond price (PV) $ (1,105.00) 4 Number of years to maturity 12 5 = 4*3 Number of compounding periods till maturity (NPER) 12 Bond yield to maturity RATE(NPER,PMT,PV,FV) Bond yield to maturity 5.76%Related Questions
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