Bonomo Corporation’s bonds have 4 years remaining to maturity. Interest is paid annually in arrears. The...

Bonomo Corporation’s bonds have 4 years remaining to maturity. Interest is paid annually in arrears. The bonds have a par value of $1,000, and a coupon interest rate of 4.5%. (a) What is the bonds’ yield-to-maturity at a current price of $916? (b) What is the bonds’ yield-to-maturity at a current price of $1022? (c) Would you pay $916 for one of Bonomo’s bonds if you thought that the appropriate rate of interest (i.e., your expected rate of return) was 6%? (d) Why, or why not?

Expert Solution

(a)	Yield-to-maturity	=RATE(nper,pmt,pv,fv)	Where,
		= 6.98%	nper	=	4
			pmt	=	$ 45.00
			pv	=	$ -916.00
			fv	=	$ 1,000.00

(b)	Yield-to-maturity	=RATE(nper,pmt,pv,fv)	Where,
		= 3.90%	nper	=	4
			pmt	=	$ 45.00
			pv	=	$ -1,022.00
			fv	=	$ 1,000.00

(c)	Price of bond	=-pv(rate,nper,pmt,fv)	Where,
		= $ 948.02	rate	=	6%
			nper	=	4
			pmt	=	$ 45.00
			fv	=	$ 1,000.00

(d)	Yes

	At 6% rate of interest, price of bonds should be $ 948.02. But, it is offered at lower price of $ 916.So, it is better to but the bond at $ 916.

jeff jeffy answered 5 months ago

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