Harrimon Industries bonds have 5 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 10%. a. What is the yield to maturity at a current market price of 1. $841? Round your answer to two decimal places. 2 $1 197? Round your answer to two decimal places.
Harrimon Industries bonds have 5 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 10%. a. What is the yield to maturity at a current market price of 1. $841? Round your answer to two decimal places. 2 $1 197? Round your answer to two decimal places.
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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![**Harrimon Industries Bonds Analysis**
Harrimon Industries bonds have 5 years left to maturity. The bonds are structured to pay interest annually, with each bond having a par value of $1,000 and offering a coupon rate of 10%.
**a. Calculation of Yield to Maturity:**
To determine the yield to maturity (YTM) for two different market prices, calculate the YTM and round your answers to two decimal places.
1. **For a market price of $841:**
\[
\text{Yield to Maturity (YTM)} = \underline{\phantom{000.00\%}}
\]
2. **For a market price of $1,197:**
\[
\text{Yield to Maturity (YTM)} = \underline{\phantom{000.00\%}}
\]
**b. Investment Decision Analysis:**
Consider whether you would pay $841 for each bond, given that you believe a "fair" market interest rate for such bonds is 14% (i.e., if the required rate of return, \( r_d = 14\% \)).
Reflect on this analysis as a way to understand bond valuation and the correlation between market prices, coupon rates, and yield to maturity.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa648b802-9180-4a88-afdf-294536c7cba4%2F0c904df3-05c8-4d55-9f7e-490b4ee658f4%2Fet08vhc_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Harrimon Industries Bonds Analysis**
Harrimon Industries bonds have 5 years left to maturity. The bonds are structured to pay interest annually, with each bond having a par value of $1,000 and offering a coupon rate of 10%.
**a. Calculation of Yield to Maturity:**
To determine the yield to maturity (YTM) for two different market prices, calculate the YTM and round your answers to two decimal places.
1. **For a market price of $841:**
\[
\text{Yield to Maturity (YTM)} = \underline{\phantom{000.00\%}}
\]
2. **For a market price of $1,197:**
\[
\text{Yield to Maturity (YTM)} = \underline{\phantom{000.00\%}}
\]
**b. Investment Decision Analysis:**
Consider whether you would pay $841 for each bond, given that you believe a "fair" market interest rate for such bonds is 14% (i.e., if the required rate of return, \( r_d = 14\% \)).
Reflect on this analysis as a way to understand bond valuation and the correlation between market prices, coupon rates, and yield to maturity.
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