?(Related to Checkpoint 9.2 and Checkpoint? 9.3)???(Bond valuation? relationships) The 19?-year, ?$1000 par value bonds of Waco Industries pay 11 percent interest annually. The market price of the bond is ?$1055?, and the? market's required yield to maturity on a? comparable-risk bond is 9 percent.
a.Compute the? bond's yield to maturity. answer in percentage
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?
Requirement (a) - Yield To Maturity in percentage
Yield To Maturity [YTM] = Coupon Amount + [(Face Value – Bond Price) / Maturity Years] / [(Face Value + Bond Price)/2]
= $110 + [($1,000 - $1,055) / 19)] / [($1,000 + $1,055) / 2]
= [($110 – 2.8947) / $1,027.50] x 100
= 10.33%
Requirement (b) - Value of the bonds at yield to maturity on a comparable-risk bond
Par Value of the bond = $1,000
Coupon Amount = $110 [$1,000 x 11%]
Yield to Maturity = 9%
Maturity Period = 19 Years
Value of the Bond = Present Value of the Coupon Payments + Present Value of the Par Value
= $110 [PVIFA 9%, 19 Years] + $1,000[PVIF 9%, 19 Years]
= [$110 x 8.9501147] + [$1,000 x 0.19448967]
= $984.51 + 194.49
= $1,179
?(Related to Checkpoint 9.2 and Checkpoint? 9.3)???(Bond valuation? relationships) The 19?-year, ?$1000 par value bonds of...
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