Yield to maturity 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%. What is the yield to maturity at a current market price of $884? Round your answer to two decimal places. % $1,147? Round your answer to two decimal places. % Would you pay $884 for each bond if you thought that a "fair" market interest rate for such bonds was 13%-that is, if rd = 13%? You would buy the bond as long as the yield to maturity at this price equals your required rate of return. You would not buy the bond as long as the yield to maturity at this price is greater than your required rate of return. 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. You would buy the bond as long as the yield to maturity at this price is greater than your required rate of return. You would buy the bond as long as the yield to maturity at this price is less than your required rate of return.
YTM on the bond with
Bond maturity = 4
Par value = $1000
coupon rate 10%
Coupon = 10%*1000 = 100
Bond price = $884
YTM or rate can be calculated in excel as follows:
Nper = 4
FV = 1000
PV = -884
PMT = 100
=rate(nper,pmt,pv,fv)
=rate(4,100,-884,1000)
= 13.98%
YTM would be 13.98%
all things remaining same with only price change to $1147, YTM
would be
=rate(4,100,-1147,1000)
=5.78%
YTM with bond price 1147 would be 5.78%
From the options:
You would buy the bond as long as the yield to maturity at
this price is greater than your required rate of
return
since we are getting return more than what the market is
offering.
Yield to maturity Harrimon Industries bonds have 4 years left to maturity. Interest is paid annually,...
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