Question

I keep doing this problem alongside other problems over the internet and it keeps saying it is wrong. Can someone please assist me with what I am doing incorrectly?

Harrimon Industries bonds have 4 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 10%. a. What is the yield to maturity at a current market price of 1. $863? Round your answer to two decimal places. 14 % 2. $1,108? Round your answer to two decimal places. 7 % b. Would you pay $863 for each bond if you thought that a "fair" market interest rate for such bonds was 14%-that is, if ra = 14%? I. You would buy the bond as long as the yield to maturity at this price is greater than your required rate of return. II. You would buy the bond as long as the yield to maturity at this price is less than your required rate of return. III. You would buy the bond as long as the yield to maturity at this price equals your required rate of return. IV. You would not buy the bond as long as the yield to maturity at this price is greater than your required rate of return. V. You would not buy the bond as long as the yield to maturity at this price is less than the coupon rate on the bond. IV ®

Answer 1

a)

1)

$ 1,000 10% 9 A A Face value (FV) B Coupon rate C|Number of compounding periods per year AxB:C Interest per period (PMT) Bond price (PV) DNumber of years to maturity Number of compounding periods till DxC maturity (NPER) Bond yield to maturity 100 863 10 11 4 13 RATE(NPER,PMT,-PV,FV)]x1 14 15 Bond yield to maturity 14.78% =RATE(4,100,-863,1000)x1 16

2)

A 6 7 1,000 10% 8 9 A Face value (FV) B Coupon rate C Number of compounding periods per year AxB:C Interest per period (PMT) Bond price (PV) D Number of years to maturity Number of compounding periods till DxC maturity (NPER) Bond yield to maturity 100 1,108 11 12 13 RATE(NPER,PMT-PV,FV)]x1 14 Bond yield to maturity | 15 16 6.82% =RATE(4,100,-1108,1000)x1

b)

Correct option is I

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