Question

Fingen's 16-year, $1000 par value bonds pay 9 percent interest annually. The market price of the bonds is $1,120 and the market's required yield to maturity on a comparable-risk bond is 6 percent.

a. Compute the bond's yield to maturity.

b. Determine the value of the bond to you, given your required rate of return.

c. Should you purchase the bond?

Answer #1

**Answer to Part
a.**

Face Value = $1,000

Current Price = $1,120

Annual Coupon Rate = 9%

Annual Coupon = 9% * $1,000

Annual Coupon = $90

Time to Maturity = 16 years

Let Annual YTM be i%

$1,120 = $90 * PVIFA(i%, 16) + $1,000 * PVIF(i%, 16)

Using financial calculator:

N = 16

PV = -1120

PMT = 90

FV = 1000

I = 7.67%

**Annual YTM = 7.67%**

**Answer to Part
b.**

Par Value = $1,000

Annual Coupon = $90

Time to Maturity = 16 years

Market Return = 6%

Value of Bond = $90 * PVIFA(6%, 16) + $1,000 * PVIF(6%,
16)

Value of Bond = $90 * (1 - (1/1.06)^16) / 0.06 + $1,000 *
(1/1.06)^16

Value of Bond = $90 * 10.105895 + $1,000 * 0.393646

Value of Bond = $1,303.18

**Answer to Part
c.**

You should purchase this bond as it is under priced.

Fingen's 16-year, $1000 par value bonds pay 9 percent interest
annually. The market price of the bonds is $1070 and the market's
required yield to maturity on a comparable-risk bond is 7
percent.
a. Compute the bond's yield to maturity. (round to 2 decimal
places)
b. Determine the value of the bond to you, given your required
rate of return.
c. Should you purchase the bond?

Fingen's 13-year, $1000 par value bonds pay 12 percent
interest annually. The market price of the bonds is $880 and the
market's required yield to maturity on a comparable-risk bond is
13 percent.
a. Compute the bond's yield to maturity. b. Determine the value
of the bond to you, given your required rate of return. c. Should
you purchase the bond?

Fingen's 15 year, $1000 par value bonds pay 11 percent interest
annually. The market price of the bonds is $920 and the market's
required yield to maturity on a comparable-risk bond is 14
percent.
a. Compute the bond's yield to maturity.
b. Determine the value of the bond to you, given your required
rate of return.
c. Should you purchase the bond?

(Bond valuation) Fingen's 19-year, $1000 par value bonds
pay 12 percent interest annually. The market price of the bonds is
$1150 and the market's required yield to maturity on a
comparable-risk bond is 9 percent.
a. Compute the bond's yield to maturity.
b. Determine the value of the bond to you, given your required
rate of return.
c. Should you purchase the bond?

Fingen's 16-year, $1,000 par value bonds pay 13 percent
interest annually. The market price of the bonds is $1,140 and
the market's required yield to maturity on a comparable-risk bond
is 10 percent. a. Compute the bond's yield to maturity.
b. Determine the value of the bond to you, given your required
rate of return. c. Should you purchase the bond?

Fingen's 14-year, $1,000 par value bonds pay 9 percent
interest annually. The market price of the bonds is $1,100 and
the market's required yield to maturity on a comparable-risk bond
is 10 percent.
a. Compute the bond's yield to maturity.
b. Determine the value of the bond to you, given your required
rate of return.
c. Should you purchase the bond?

Fingen's 14-year, $1000 par value bonds pay 13 percent
interest annually. The market price of the bonds is $1110 and the
market's required yield to maturity on a comparable-risk bond is
10 percent.
a.Compute the bond's yield to maturity.
b.Determine the value of the bond to you, given your required
rate of return.
c.Should you purchase the bond?
a.What is your yield to maturity on the Fingen bonds given the
market price of the bonds?

(Bond valuation) Fingen's 15-year, $1,000 par value bonds
pay 9 percent interest annually. The market price of the bonds is
$930 and the market's required yield to maturity on a
comparable-risk bond is 8 percent.
a. Compute the bond's yield to maturity.
b. Determine the value of the bond to you, given your required
rate of return.
c. Should you purchase the bond?

(Bond valuation) Fingen's 15-year, $1,000 par value bonds
pay 9 percent interest annually. The market price of the bonds is
$930 and the market's required yield to maturity on a
comparable-risk bond is 8 percent.
a. Compute the bond's yield to maturity.
b. Determine the value of the bond to you, given your required
rate of return.
c. Should you purchase the bond?

Fingen's 14-year, $1,000 par value bonds pay 14 percent
interest annually. The market price of the bonds is $1,110 and the
market's required yield to maturity on a comparable-risk bond is
11 percent.
a. Compute the bond's yield to maturity.
b. Determine the value of the bond to you, given your required
rate of return.
c. Should you purchase the bond?

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 9 minutes ago

asked 11 minutes ago

asked 11 minutes ago

asked 33 minutes ago

asked 33 minutes ago

asked 36 minutes ago

asked 36 minutes ago

asked 39 minutes ago

asked 39 minutes ago

asked 43 minutes ago

asked 47 minutes ago

asked 49 minutes ago