Bond valuation
1. You are considering a 30-year, $1,000 par value bond. Its coupon rate is 8%, and interest is paid semiannually. If you require an "effective" annual interest rate (not a nominal rate) of 8.6%, how much should you be willing to pay for the bond? Do not round intermediate steps. Round your answer to the nearest cent.
Yield to maturity
Harrimon Industries bonds have 4 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 10%.
2. What is the yield to maturity at a current market price of
a. $894? Round your answer to two decimal places.
%
b. $1,121? Round your answer to two decimal places.
%
c. Would you pay $894 for each bond if you thought that a "fair" market interest rate for such bonds was 13%-that is, if rd = 13%?
-You would buy the bond as long as the yield to maturity at this price is greater than your required rate of return.
-You would buy the bond as long as the yield to maturity at this price is less than your required rate of return.
-You would buy the bond as long as the yield to maturity at this price equals your required rate of return.
-You would not buy the bond as long as the yield to maturity at this price is greater than your required rate of return.
-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.