Question

# Harrimon Industries bonds have 6 years left to maturity. Interest is paid annually, and the bonds...

Harrimon Industries bonds have 6 years left to maturity. Interest is paid annually, and the bonds have a \$1,000 par value and a coupon rate of 9%.

1. What is the yield to maturity at a current market price of
%
%
2. Would you pay \$826 for each bond if you thought that a "fair" market interest rate for such bonds was 12%-that is, if rd = 12%?
1. You would buy the bond as long as the yield to maturity at this price is greater than your required rate of return.
2. You would buy the bond as long as the yield to maturity at this price is less than your required rate of return.
3. You would buy the bond as long as the yield to maturity at this price equals your required rate of return.
4. You would not buy the bond as long as the yield to maturity at this price is greater than your required rate of return.
5. You would not buy the bond as long as the yield to maturity at this price is less than the coupon rate on the bond

 Ans a) 1 we have to use financial calculator to solve this put in calculator FV 1000 PV -826 PMT 1000*9% 90 N 6 compute I 13.40% YTM = 13.40% Ans a) 2 we have to use financial calculator to solve this put in calculator FV 1000 PV -1160 PMT 1000*9% 90 N 6 compute I 5.77% YTM = 5.77% Ans b) Correct answer is option - I You would buy the bond as long as the yield to maturity at this price is greater than your required rate of return.

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