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?(Related to Checkpoint 9.2 and Checkpoint? 9.3)???(Bond valuation)???Fingen's 14?-year, ?$1,000par value bonds pay 15 percent interest annually....

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?(Related to Checkpoint 9.2 and Checkpoint? 9.3)???(Bondvaluation)???Fingen's 14?-year, ?$1,000par value bonds pay 15percent interest annually. The market price of the bonds is $940andthe? market's required yield to maturity on a? comparable-risk bondis 18 percent.

a.??Compute the? bond's yield to maturity.

b.??Determine the value of the bond to? you, given your requiredrate of return.

c.??Should you purchase the? bond?

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4.4 Ratings (772 Votes)

a

                  K = N
Bond Price =? [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N
                   k=1
                  K =14
940 =? [(15*1000/100)/(1 + YTM/100)^k]     +   1000/(1 + YTM/100)^14
                   k=1
YTM% = 16.1

b

                  K = N
Bond Price =? [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N
                   k=1
                  K =14
Bond Price =? [(15*1000/100)/(1 + 18/100)^k]     +   1000/(1 + 18/100)^14
                   k=1
Bond Price = 849.76

c

Do not buy as bond price of 940 is more than your expected price of 849.76
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Transcribed Image Text

?(Related to Checkpoint 9.2 and Checkpoint? 9.3)???(Bondvaluation)???Fingen's 14?-year, ?$1,000par value bonds pay 15percent interest annually. The market price of the bonds is $940andthe? market's required yield to maturity on a? comparable-risk bondis 18 percent.a.??Compute the? bond's yield to maturity.b.??Determine the value of the bond to? you, given your requiredrate of return.c.??Should you purchase the? bond?

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