A $1,000 face value corporate bond paying 10% is due to expire in 12 years time. The bond is currently selling for $975.. You colleague, who has an opportunity cost of a 13% yield is interested in investing in this bond and is seeking advice from you as follows:

1. Your colleague wants to know the current yield (CY) on the bond

        What is it and why she wants to know this (Hint: CY = Cash flow/bond price)?

2. Your colleague wants to know the yield on the bond over the 12-year period,    

       which  essentially is the expected yield) What is it and why does your colleague 

       want to know this?

3. In dollar terms and rounding to the nearest dollar, what is the maximum price your colleague is willing to pay to own the bond??

4. Would she buy the bond? Why? 

Answer rating: 100% (QA)

1 The current yield CY on the bond is the annual interest payment divided by the current price of th... View the full answer