Yield to Maturity and Required Returns The Brownstone Corporation\'s bonds have
ID: 2821583 • Letter: Y
Question
Yield to Maturity and Required Returns The Brownstone Corporation's bonds have 5 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 8%. a. 1. What is the yield to maturity at a current market price of $792? Round your answer to two decimal places. 2. What is the yield to maturity at a current market price of $1,060? Round your answer to two decimal places. 3% b. would you pay $792 for one of these bonds if you thought that the appropriate rate of interest was 12%-that is, if ra = 12%.Explanation / Answer
1)
Face value = $1,000
Coupon = 0.08 * 1000 = 80
Yield to maturity using a fianancial calculator = 14.07%
Keys to use in a financial calculator: FV 1000, PV -792, N 5, PMT 80, CPT I/Y
2)
Face value = $1,000
Coupon = 0.08 * 1000 = 80
Yield to maturity using a financial calculator = 6.55%
Keys to use in a financial calculator: FV 1000, PV -1060, N 5, PMT 80, CPT I/Y
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