The 12​-year ​$1,000 par bonds of Vail Inc. pay 8 percent interest. The​ market's required yield to maturity on a​ comparable-risk bond is 12 percent. The current market price for the bond is $850. a.  Determine the yield to maturity. b.  What is the value of the bonds to you given the yield to maturity on a​ comparable-risk bond? c.  Should you purchase the bond at the current market​ price?

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
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 The
12​-year
​$1,000
par bonds of Vail Inc. pay
8
percent interest. The​ market's required yield to maturity on a​ comparable-risk bond is
12
percent. The current market price for the bond is
$850.
 
a.  Determine the yield to maturity.
b.  What is the value of the bonds to you given the yield to maturity on a​ comparable-risk bond?
c.  Should you purchase the bond at the current market​ price?
 
 
 

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Part 1
a. What is your yield to maturity on the Vail bonds given the current market price of the​ bonds?
 
enter your response here​%
​ (Round to two decimal​ places.)
Expert Solution
Step 1: Define=yield of bond

Yield of bond is that interest rate which equates the present value of cash flow from the bond to the market price of bond.

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