The Heymann Company’s bonds have 4 years remaining to maturity. Interest is paid annually;
the bonds have a $1,000 par value; and the coupon interest rate is 9 percent.
a. What is the yield to maturity at a current market price of (1) $829 or (2) $1,104?
b. Would you pay $829 for one of these bonds if you thought that the appropriate rate of interest
was 12 percent—that is, if kd 12%? Explain your answer.
2007-08-17 13:56:44 · 3 answers · asked by Sabrina W 1 in Business & Finance ➔ Investing
use your Excel spreadsheet to set up a cash flow [time value of money] analysis and the built in functions for IRR and NPV to answer your homework questions.
GL
2007-08-17 14:18:46 · answer #1 · answered by Spock (rhp) 7 · 0⤊ 0⤋
If the price was $829, the bond would yield 14.99%. If the price were $1,104 the yield would fall to 6%.
If the rate of interest was 12% the the bond should be worth $908.88, so yes I would buy it for $829 all day long!
These are just inputs to a Time Value of Money Calculation that can be done in excel or on a business calculator:
Periods = 4, Int rate = 12%, Pmt = 9%/1000 ($90), FV = $1000. Calculate price = $908, etc.
2007-08-17 21:41:49 · answer #2 · answered by StockJock 4 · 0⤊ 0⤋
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2007-08-18 12:25:04 · answer #3 · answered by Anonymous · 0⤊ 0⤋