Question

The 16-year, \$1,000 par value bonds of Waco Industries pay 7 percent interest annually. The market...

The 16-year, \$1,000 par value bonds of Waco Industries pay 7 percent interest annually. The market price of the bond is \$875, 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 the market's required yield to maturity on a comparable-risk bond. c. Should you purchase the bond?.

Par Value = \$1,000
Current Price = \$875

Annual Coupon Rate = 7.00%
Annual Coupon = 7.00% * \$1,000
Annual Coupon = \$70

Time to Maturity = 16 years

Let Annual YTM be i%

\$875 = \$70 * PVIFA(i%, 16) + \$1,000 * PVIF(i%, 16)

Using financial calculator:
N = 16
PV = -875
PMT = 70
FV = 1000

I = 8.45%

Annual YTM = 8.45%

Par Value = \$1,000
Annual Coupon = \$70
Time to Maturity = 16 years

Annual Comparable Yield = 10%

Value of Bond = \$70 * PVIFA(10%, 16) + \$1,000 * PVIF(10%, 16)
Value of Bond = \$70 * (1 - (1/1.10)^16) / 0.10 + \$1,000 / 1.10^16
Value of Bond = \$765.29

The current market price of bond is higher than the value of bond with comparable-risk bond. Therefore, you should not purchase this bond.

Earn Coins

Coins can be redeemed for fabulous gifts.

Similar Homework Help Questions
• The 15-year, \$1,000 par value bonds of Waco Industries pay 11 percent interest annually

(Related to Checkpoint 9.2 and Checkpoint 9.3) (Bond valuation relationships) The 15-year, \$1,000 par value bonds of Waco Industries pay 11 percent interest annually. The market price of the bond is \$1,145, 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 the market's required yield to maturity on a comparable-risk bond. c. Should you purchase the bond? a. What is your yield to...

• The 17​-year, \$1,000 par value bonds of Waco Industries pay 8 percent interest annually. The market...

The 17​-year, \$1,000 par value bonds of Waco Industries pay 8 percent interest annually. The market price of the bond is \$925​, and the​ market's required yield to maturity on a​ comparable-risk bond is 10% percent. a.  What is your yield to maturity on the Waco bonds given the current market price of the​ bonds? ____% 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 13​-year, ​\$1000 par value bonds of Waco Industries pay 6 percent interest annually. The market...

The 13​-year, ​\$1000 par value bonds of Waco Industries pay 6 percent interest annually. The market price of the bond is ​\$935​, and the​ market's required yield to maturity on a​ comparable-risk bond is 5 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?

• The 12​-year, \$1,000 par value bonds of Waco Industries pay 9 percent interest annually. The market price of the bond is...

The 12​-year, \$1,000 par value bonds of Waco Industries pay 9 percent interest annually. The market price of the bond is \$1,055​, and the​ market's required yield to maturity on a​ comparable-risk bond is 7 percent. a.   What is your yield to maturity on the Waco bonds given the current market price of the​ bond____%? 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​...

• The 15​-year, ​\$1000 par value bonds of Waco Industries pay 6 percent interest annually. The market...

The 15​-year, ​\$1000 par value bonds of Waco Industries pay 6 percent interest annually. The market price of the bond is ​\$1095​, and the​ market's required yield to maturity on a​ comparable-risk bond is 4 percent. a.  Compute the​ bond's yield to maturity. (round to 2 decimal points) b.  Determine the value of the bond to you given the​ market's required yield to maturity on a​ comparable-risk bond. (round to the nearest cent) c.  Should you purchase the​ bond?

• ​(Bond valuation​ relationships) The 11​-year, ​\$1000 par value bonds of Waco Industries pay 9 percent interest...

​(Bond valuation​ relationships) The 11​-year, ​\$1000 par value bonds of Waco Industries pay 9 percent interest annually. The market price of the bond is ​\$1155​, 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 the​ market's required yield to maturity on a​ comparable-risk bond. c.  Should you purchase the​ bond?

• (Related to Checkpoint 9.2 and Checkpoint 9.3) (Bond valuation relationships) The 17-year, \$1,000 par value bonds...

(Related to Checkpoint 9.2 and Checkpoint 9.3) (Bond valuation relationships) The 17-year, \$1,000 par value bonds of Waco Industries pay 11 percent interest annually. The market price of the bond is \$1,155, 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 the market's required yield to maturity on a comparable-risk bond. c. Should you purchase the bond? a....

• ​(Bond valuation) ​Fingen's 15​-year, ​\$1,000 par value bonds pay 9 percent interest annually. The market price...

​(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 14​-year, \$1,000 par value bonds pay 8 percent interest annually. The market price...

(Bond valuation)  ​Fingen's 14​-year, \$1,000 par value bonds pay 8 percent interest annually. The market price of the bonds is ​\$1,130 and the​ market's required yield to maturity on a​ comparable-risk bond is 5 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? round to two decimal places.

• Smith’s 17-year, \$1,000 par value bonds pay 14 interest annually. The market price of the bonds...

Smith’s 17-year, \$1,000 par value bonds pay 14 interest annually. The market price of the bonds is \$950 and the market's required yield to maturity on a comparable-risk bond is 16 percent. a. What is your yield to maturity on the Smith bonds given the market price of the bonds? b. What should be the value of the Smith bonds given your required rate of return on a comparable-bond? c. You should or should not purchase the Smith bonds because...