Question text A commercial bond currently sells for $1,048 and pays 11% over the next 12...
Question text A commercial bond currently sells for $1,048 and pays 11% over the next 12 years. A customer is seeking to invest in the bond and she is requiring a return on the bond only if the invest yields a return of 10.5% or higher over the life of the investment.. What would be your recommendation to her?
Homework Answers
Bond Par Value = $1,000
Bond Present Value = $1,048
Coupon Rate = 11%
Time Period = 12 years
Calculating YTM of Bond,
Using TVM calculation,
I = [FV = 1000, PV = 1048, T = 12, PMT = 110]
I = 10.29%
So,
YTM of Bond = 10.29%
As, YTM of Bond is less than Required Rate(10.50), so one should not invest in the bond
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