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# The 12​-year, \$1,000 par value bonds of Waco Industries pay 9 percent interest annually. The market price of the bond is...

The 12​-year, \$1,000 par value bonds of Waco Industries pay 9 percent interest annually. The market price of the bond is \$1,055​,

and the​ market's required yield to maturity on a​ comparable-risk bond is 7 percent.

a.   What is your yield to maturity on the Waco bonds given the current market price of the​ bond____%?

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_____?

Yield to maturity = [Annual Coupon + (Par value - market value)/Life]/Average Price

= [90-4.58333]/1027.5

= 8.31%

b.Value of bond is equal to the present value of all future coupon payments and the redemption value

= 1,000*9%*PVAF(7%, 12 years) + 1,000*PVF(7%, 12 years)

= 90*7.9427 +1,000*0.4440

= \$1,158.84

c.Yes, since price is lower than value of bond

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