Harrimon Industries bonds have 6 years left to maturity. Interest ispaid 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) $865 and (2) $1,166?b. Would you pay $865 for each bond if you thought that a “fair” market interest rate forsuch bonds was 12%—that is, if rd = 12%? Explain your answer.
Harrimon Industries bonds have 6 years left to maturity. Interest ispaid 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) $865 and (2) $1,166?b. Would you pay $865 for each bond if you thought that a “fair” market interest rate forsuch bonds was 12%—that is, if rd = 12%? Explain your answer.
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 have 6 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) $865 and (2) $1,166?
b. Would you pay $865 for each bond if you thought that a “fair” market interest rate for
such bonds was 12%—that is, if rd = 12%? Explain your answer.
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