Question

Can you please assist me with setting this question in excel and what functions to use

PROBLEM 5
Minneapolis Health System has bonds outstanding that have four years remaining to maturity,
a coupon interest rate of 9 percent paid annually, and a $1,000 par value.
a. What is the yield to maturity on the issue if the current market price is $829?
b. If the current market price is $1,104?
c. Would you be willing to buy one of these bonds for $829 if you required a 12 percent rate of return on
the issue? Explain your answer.

Answer 1

PROBLEM 5

a) & b)

YTM is the return that we anticpate to get on a bond if we hold the bond till maturity.

Functions to use: =Rate()

c)

If the YTM is more than the required return, then the investor should buy the bond as he will be getting more return than what he requires and if the YTM is less than the required return then the investor shouldn't buy the bond, and if YTM = required return then the investor would be indifferent in buying the bond.

If the price of the bond is $829, the YTM is 14.9881% as we calculated above.

The required return of the investor is 12%.

So, the investor will buy this bond at $829 as YTM is more than the requried return.