Heymann Company bonds have 5 years left to maturity. Interest is paid yearly, and the bonds have a $1,000 par value and a coupon rate of 10%.
Question1. What is the yield to maturity at a current market price of?
i) $867
ii) $1,209
Question2. Would you pay $867 for each bond if you thought that a "fair" market interest rate for such bonds was 13%-that is, if rd = 13%?
i) You would buy the bond as long as the yield to maturity at this price is greater than your needed rate of return.
ii) You would buy the bond as long as the yield to maturity at this price is less than your needed rate of return.
iii) You would purchase the bond as long as the yield to maturity at this price equals your required rate of return.
iv) You wouldn’t purchase the bond as long as the yield to maturity at this price is greater than your required rate of return.
v) You wouldn’t purchase the bond as long as the yield to maturity at this price is less than the coupon rate on bond.