In: Finance

# ​Fingen's 13​-year, ​$1,000 par value bonds pay 9 percent interest annually. The market price of the... ​Fingen's 13​-year, ​$1,000 par value bonds pay 9 percent interest annually. The market price of the bonds is ​$850 and the​ market's required yield to maturity on a​ comparable-risk bond is 10 percent. a. Compute the​ bond's yield to maturity. b. Determine the value of the bond to​ you, given your required rate of return. c. Should you purchase the​ bond? ## Solutions ##### Expert Solution Part (a): Yield to Maturity (YTM)= 11.250311% calculated using the RATE function of Excel as follows: Part (b): Value of the bond at the required YTM of 10%=$ 928.97 calculated using PV function of Excel as follows:

Part (c):

YTM of the bond is 11.25%, higher that the market expectation of 10%

As a result, current price of $850 is lower than the intrinsic value of$928.97.

Hence we shall purchase the bond.

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