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Jim Busby calls his broker to inquire about purchasing a bond of Disk Storage Systems. His...

Jim Busby calls his broker to inquire about purchasing a bond of Disk Storage Systems. His broker quotes a price of $1,170. Jim is concerned that the bond might be overpriced based on the facts involved. The $1,000 par value bond pays 11 percent interest, and it has 15 years remaining until maturity. The current yield to maturity on similar bonds is 9 percent.

a. Calculate the present value of the bond. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual.)

b. Do you think the bond is overpriced?

  • No

  • Yes

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