The 15-year, $1,000 par value bonds of Waco Industries pay 11 percent interest annually

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Question

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 maturity on the Waco bonds given the current market price of the bonds?

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Answer 1

Answer #1

a) YTM:

=RATE(nper,pmt,pv,fv)

=RATE(15,11%*1000,-1145,1000)

=9.18%

b) value of bond at 8% yield:

=PV(8%,15,11%*1000,1000)

=1256.78

c) Yes

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Answer 2

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The 15-year, $1,000 par value bonds of Waco Industries pay 11 percent interest annually

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