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The 12​-year, ​$1,000 par value bonds of Waco Industries pay 12percent interest annually. The market...

The 12-year, $1,000 par value bonds of Waco Industries pay 12 percent interest annually. The market price of the bond is $1,135, and the market's required yield to maturity on a comparable-risk bond is 9 percent. Compute the bond's yield to maturity.

1.  Determine the value of the bond to you given the market's required yield to maturity on a comparable-risk bond.

Solutions

Expert Solution

Face Value of Bond = $1000

Annual Coupon Payment = $1000*12% = $120

No of years to maturity = 12 years

a). Current Market Price of Bond = $1135

Calculating the Yield to Maturity of Bond using Excel "RATE" Function:-

So,the Yield to Maturity(YTM) of Bond is 10.02%

b). Market Yield to Maturity on comparable bond is 9%

Calculating the Price of Bond using excel "PV" function:-

So, Price of Bond based on Market Yield to Maturity on comparable bond is $1,214.82

jeff jeffy answered 2 years ago
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