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1. What is the YTM for this Proctor & Gambles corporate bond? 2. What is the coupon...

Question:

1. What is the YTM for this Proctor & Gamble’s corporate bond?

2. What is the coupon yield of this bond over the next year?

3. If your required rate of return for a bond of this risk-class is 6.2 %, what value do you place on this Proctor & Gamble bond?

4. At this required rate of return of 6.2 % are you interested in purchasing this bond?

5. If you purchased this Proctor & Gamble bond for $961.24 yesterday and the market rate of interest for this bond increased to 6.0 % today, do you have a gain or loss? How much is that gain or loss in dollars?

You open your Wall Street Journal (WSJ) on the morning of February 31, 2008, and see the following bond quote for General Mills, Incorporated. Based on this WSJ information, answer the following questions.

1. What is the YTM for this Proctor & Gamble’s
Transcribed Image Text:

Company (ticker) Coupon! Maturity! Last Price! High | Low | Change Yield% Proctor & Gamble CO (PG HD) 5.550% | Mar 2037 | 96.124 | 96.124 | 95.933 | -0.245 | 5.825

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Answer rating: 58% (17 reviews)

1 n 29 Years 2 58 PV 96124 PMT 55502 2775 FV 1000 i YTM 291427 2 YTM 5828...View the full answer


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Related Video

Bond valuation is the process of determining the worth of a bond. It is based on the present value of the bond\'s future cash flows, which include coupon payments and the return of the bond\'s face value (or \"principal\") at maturity. The discount rate used in the calculation is directly tied to prevailing interest rates, and a rise in interest rates will decrease the present value of the bond and thus lower its price. Conversely, a fall in interest rates will increase the present value of the bond and raise its price. Interest rates serve as a benchmark for determining the value of a bond, as they determine the discount rate used in the bond valuation calculation. The most commonly used measure of interest rates is the yield to maturity (YTM), which represents the internal rate of return of an investment in a bond if the investor holds the bond until maturity and receives all scheduled payments. Yield to maturity is a function of the coupon rate, the current market price of the bond, the face value of the bond, and the number of years remaining until maturity. By comparing the yield to maturity of a bond to prevailing market interest rates, an investor can assess the relative value of the bond.

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