Held-to-Maturity Security Price Determination
Response to the following problem:
McMinville Corporation has decided to purchase bonds of La Verkin Corporation as a long-term investment. The 10-year bonds have a stated rate of interest of 12%, with interest payments being made semiannually. How much should McMinville be willing to pay for $150,000 of the bonds if:
1. A rate of return of 14% is deemed necessary to justify the investment?
2. A rate of return of 10% is considered to be an adequate return?