Fingen's 16-year, $1,000 par value bonds pay 11 percent interest annually. The market price of the bonds is $930 and the market's required yield to maturity on a comparable-risk bond is 14 percent. a. Compute the bond's yield to maturity. b. Determine the value of the bond to you, given your required rate of return. c. Should you purchase the bond?
Fingen's 16-year, $1,000 par value bonds pay 11 percent interest annually. The market price of the bonds is $930 and the market's required yield to maturity on a comparable-risk bond is 14 percent. a. Compute the bond's yield to maturity. b. Determine the value of the bond to you, given your required rate of return. c. Should you purchase the bond?
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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Question
Fingen's
value bonds pay
16-year,
$1,000
par 11
percent interest annually. The market price of the bonds is
$930
and the market's required yield to maturity on a comparable-risk bond is
14
percent.a. Compute the bond's yield to maturity.
b. Determine the value of the bond to you, given your required rate of return .
c. Should you purchase the bond?
Question content area bottom
Part 1
a. What is your yield to maturity on the Fingen bonds given the market price of the bonds?
Expert Solution
Step 1: Given Value
Time = nper = 16 Years
Face Value = fv = $1000
Coupon Rate = 11%
offer Market price of Bond = pv = $930
Market Yield to Maturity = rate = 14%
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