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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. 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?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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(Related to Checkpoint 9.2 and Checkpoint 9.3) (Bond valuation relationships) The 13-year, $1,000 par value bonds of Waco Industries pay 12 percent interest annually. The market price of the bond is $1,095, and the market's required yield to maturity on a comparable-risk bond is 9 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.) (…)
Transcribed Image Text:(Related to Checkpoint 9.2 and Checkpoint 9.3) (Bond valuation relationships) The 13-year, $1,000 par value bonds of Waco Industries pay 12 percent interest annually. The market price of the bond is $1,095, and the market's required yield to maturity on a comparable-risk bond is 9 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.) (…)
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Information Provided:

  • Bond maturity = 13 years
  • Par value = $1000
  • Coupon rate = 12%
  • Market price = $1095
  • YTM on comparable risk bond = 9%

 

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