Stanley, Inc. issues 10-year $1,000 bonds that pay $85 annually. The market price for the bonds is $1,034. The market's required yield to maturity on a comparable-risk bond is 8 percent. a. What is the value of the bond to you? b. What happens to the value if the market's required yield to maturity on a comparable-risk bond (i) increases to 12 percent or (ii) decreases to 6 percent? c. Under which of the circumstances in part b should you purchase the bond?
Stanley, Inc. issues 10-year $1,000 bonds that pay $85 annually. The market price for the bonds is $1,034. The market's required yield to maturity on a comparable-risk bond is 8 percent. a. What is the value of the bond to you? b. What happens to the value if the market's required yield to maturity on a comparable-risk bond (i) increases to 12 percent or (ii) decreases to 6 percent? c. Under which of the circumstances in part b 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
(Bond valuation relationships) Stanley, Inc. issues
10-year
$1,000
bonds that pay
$85
annually. The market price for the bonds is
$1,034.
The market's required yield to maturity on a comparable-risk bond is
8
percent.a. What is the value of the bond to you?
b. What happens to the value if the market's required yield to maturity on a comparable-risk bond (i) increases to
12
percent or (ii) decreases to
6
percent?c. Under which of the circumstances in part b should you purchase the bond?
Question content area bottom
Part 1
a. What is the value of the bond if the market's required yield to maturity on a comparable-risk bond is
8
percent?$enter your response here
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