Question

1. (Yield to​ maturity) The Saleemi​ Corporation's $1,000 bonds pay 11 percent interest annually and have 12 years until maturity. You can purchase the bond for $955.

a.  What is the yield to maturity on this​ bond?

b.  Should you purchase the bond if the yield to maturity on a​ comparable-risk bond is 10 percent?

1)  The yield to maturity on the Saleemi bonds is__% (Round to two decimal​ places.)

--->You should not OR should not purchase the bonds because your yield to maturity on the Saleemi bonds is more OR less than the one on a comparable risk bond. ​

Answer 1

a)Yield to maturity = [Interest +(Maturity value-purchase price)/2]/[(maturity value+purchase cost)/2]

        =[110+(1000-955)/12]/[(1000+955)/2]

       =[110+(45/12)]/[1955/2]

        =[110+ 3.75]/977.5

       = 113.75/977.5

       = .1164 or 11.64%

**This method provides approximate result .using financial calculator it comes out to be 11.72%. where PMT =110 ,n= 12,Future value =1000 ,present value = 955

b)You should purchase the bonds because your yield to maturity is more than one on comparable risk bond