Question
In: Finance
Harrimon Industries bonds have 5 years left to maturity. Interest is paid annually, and the bonds...
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Harrimon Industries bonds have 5 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 10%.
Answer_____ |
Solutions
Expert Solution
a.1.Information provided:
Par value= future value= $1,000
Time= 5 years
Coupon rate= 10%
Coupon payment= 0.10*1,000= $100
Current price= present value= $881
The yield to maturity is calculated by entering the below in a financial calculator:
FV= 1,000
N= 5
PMT= 100
PV= -881
Press the CPT key and I/Y to compute the yield to maturity.
The value obtained is 13.42.
Therefore, the yield to maturity is 13.42%.
a.2.Information provided:
Par value= future value= $1,000
Time= 5 years
Coupon rate= 10%
Coupon payment= 0.10*1,000= $100
Current price= present value= $1,188
The yield to maturity is calculated by entering the below in a financial calculator:
FV= 1,000
N= 5
PMT= 100
PV= -1,188
Press the CPT key and I/Y to compute the yield to maturity.
The value obtained is 5.59.
Therefore, the yield to maturity is 5.59%.
b.I would buy the bond as the yield to maturity at $881 is greater than the required rate of return.
Hence, the answer is option II.
In case of any query, kindly comment on the solution.
jeff jeffy answered 1 year agoRelated Solutions
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