Question

1. A 9% semiannual coupon bond matures in 6 years. The bond has a face value of $1,000 and a current yield of 8.7482%. What are the bond's price and YTM? (Hint: Refer to Footnote 6 for the definition of the current yield and to Table 7.1) Do not round intermediate calculations. Round your answer for the bond's price to the nearest cent and for YTM to two decimal places.

Bond's price:

YTM:

2.

Harrimon Industries bonds have 4 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
   1. $837? Round your answer to two decimal places
   2. $1,081? Round your answer to two decimal places
2. Would you pay $837 for each bond if you thought that a "fair" market interest rate for such bonds was 14%—that is, if r_d = 14%? select one of the following.
   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.

Answer 1

1

current yield = coupon rate*par value/current price

8.7482=(9/100)*1000/Bond price

Bond price = 1028.78

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =6x2

1028.78 =∑ [(9*1000/200)/(1 + YTM/200)^k]     +   1000/(1 + YTM/200)^6x2

k=1

YTM% = 8.38

Please ask remaining parts seperately, questions are unrelated