Question

 ​(Bond valuation)  ​Fingen's 14​-year, ​$1 comma 000 par value bonds pay 12 percent interest annually. The market price of the bonds is ​$890 and the​ market's required yield to maturity on a​ comparable-risk bond is 15 percent. a.  Compute the​ bond's yield to maturity. b.  Determine the value of the bond to​ you, given your required rate of return. c.  Should you purchase the​ bond? a.  What is your yield to maturity on the Fingen bonds given the market price of the​ bonds? nothing​% ​(Round to two decimal​ places.)

Answer 1

a

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =14

890 =∑ [(12*1000/100)/(1 + YTM/100)^k]     +   1000/(1 + YTM/100)^14

k=1

YTM% = 13.82

b

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =14

Bond Price =∑ [(12*1000/100)/(1 + 15/100)^k]     +   1000/(1 + 15/100)^14

k=1

Bond Price = 828.27

c

Donot buy as it is overpriced