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# ?(Related to Checkpoint 9.2 and Checkpoint? 9.3)???(Bond valuation? relationships) The 19?-year, ?\$1000 par value bonds of...

?(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

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