Problem 1 - Fingen's 12-year, $1,000 par value bonds pay 12 percent interest annually. The market price of the bonds is $1,090 and the market's required yield to maturity on a comparable-risk bond is 9 percent.
a. Compute the bond's yield to maturity. What is your yield to maturity on the Fingen bonds given the market price of the bonds?
b. Determine the value of the bond to you, given your required rate of return.
c. Should you purchase the bond?
Problem 2 - The 7-year $1,000 par bonds of Vail Inc. pay 11 percent interest. The market's required yield to maturity on a comparable-risk bond is 8 percent. The current market price for the bonds is $1,070.
a. Determine the yield maturity. What is your yield to maturity on the Vail bonds given the current market price of the bonds?
b. What is the value of the bonds to you given the yield to maturity on a comparable-risk bond?
c. Should you purchase the bond at the current market price?