Question

P9-13 (similar to) i Question Help * Related to Checkpoint 9.2 and Checkpoint 9.3) (Bond valuation) Fingen's 18 year, $1,000 par value bonds pay 12 percent interest annually. The market price of the bonds is $1,090 and the market's required yield to maturity on a comparable-risk bond is 9 percent a. Compute the bonds yield to maturity b. Determine the value of the bond to you, given your required rate of return c. Should you purchase the bond? a. What is your yield to maturity on the Fingen bonds given the market price of the bonds? % (Round to two decimal places) rk 9 stut Enter your answer in the answer box and then cick Check Answer. remaining Clear A Check Answer

Answer 1

1.
Using financial calculator:
N=18
PMT=12%*1000=120
FV=1000
PV=-1090
CPT I/Y=10.843%
Hence, yield to maturity is 10.843%

2.
Value of bond at required rate of return:
N=18
PMT=12%*1000=120
I/Y=9%
FV=1000
CPT PV=1262.67
Hence, value of bond is 1262.67

3.
As the bond is selling at less than the intrinsic value, one should purchase the bond