The 11-year, $1000 par value bonds of Waco Industries pay 7 percent interest annually. The market price of the bond is $1135, and the market's required yield to maturity on a comparable-risk bond is 4 percent.
a. Compute the bond's yield to maturity.
b. Determine the value of the bond to you given the market's required yield to maturity on a comparable-risk bond.
c. Should you purchase the bond?
a) bond yield to maturity is
b) bond price
c) since bond trading price is less than intrinsic value of bond i.e. 1135<1262.81
bond is underpriced , one should purchase the bond
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