Question

7-4: Bond Ylelds 7-6: Bonds with Semiannual Coupons Yield to maturity Heymann Company bonds have 6 years left to maturity. Interest is paid annually, and the bonds have a $1,000 per value and a coupon rate of 10% a. What is the yield to maturity at a current market price of 1. $8497 Round your answer to two decimal places 2. $1,2057 Round your answer to two decimal places b. Would you pay $849 for each bond if you thought that a "air market interest rate for such bonds was 13%-that is, 13 ? 1. You would buy the bond as long as the yield to maturity at this price equals your required rate of return. II. You would not buy the bond as long as the yield to maturity at this price is greater than your required rate of return. III. 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. TV. You would buy the bond as long as the yield to maturity at this price is greater than your required rate of return. V. You would buy the bond as long as the yield to maturity at this price is less than your required rate of return Select

Answer 1

a-1). To find the YTM, we need to put the following values in the financial calculator:

N = 6;

PV = -849;

PMT = 10%*1000 = 100;

FV = 1000;

Press CPT, then I/Y, which gives us 13.87

So, YTM = 13.87%

a-2). To find the YTM, we need to put the following values in the financial calculator:

N = 6;

PV = -1205;

PMT = 10%*1000 = 100;

FV = 1000;

Press CPT, then I/Y, which gives us 5.85

So, YTM = 5.85%

b). Option "IV" is correct.