Problem:
Yield to Maturity
Bonds have 5 yrs left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 8%.
Requirement:
What is the yield at maturity at a current market price of $800 $1200? If a "fair" market interest rate for such bonds was 12 % (rd=12%); would you pay $800 for each bond? Why? Explain in detail.