The Saleemi Corporation's $1000 bonds pay 8 percent interest annually and have 12 years until maturity. You can purchase the bond for $935. 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 7 percent? a. The yield to maturity on the Saleemi bonds is
Future value= $1,000
Coupon rate= 8%
Coupon payment= 0.08*1,000= $80
Time= 12 years
Present value= $935
The yield to maturity is calculated by entering the below in a financial calculator:
Press the CPT key and I/Y to calculate the yield to maturity.
The value obtained is 8.90.
Therefore, the yield to maturity is 8.90%.
b.Yes, you should purchase the bond since it provides a higher return than that of a comparable bond which is only 7%.
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