# Question

The Severn Company’s bonds have four 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. Compute the yield to maturity for the bonds if the current market price is

(1) $829

(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 rd 12%? Explain your answer.

a. Compute the yield to maturity for the bonds if the current market price is

(1) $829

(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 rd 12%? Explain your answer.

## Answer to relevant Questions

As investment manager of Pasco Electric Company’s pension plan (which is exempt from income taxes), you must choose between IBM bonds and AT&T preferred stock. The bonds have a $1,000 par value, mature in 20 years, pay $40 ...The bonds of the Lange Corporation are perpetuities with a 10 percent coupon. Bonds of this type currently yield 8 percent, and their par value is $1,000.a. What is the price of the Lange bonds?b. Suppose interest rate ...Use the model in File C10 to solve this problem.a. Refer to Problem 10-40. Rework part (d) using the computerized model to determine what Swink’s expected dividends and stock price would be under the conditions given.b. ...Stocks R and S have the following probability distributions of returns:a. Calculate the expected return for each stock.b. Calculate the expected return of a portfolio consisting of 50 percent of each stock.c. Calculate the ...Using the model in File C11, rework Problem 11-27, assuming that a third stock, Stock C, is available for inclusion in the portfolio. Stock C has the following historical returns:Year Stock C’s Return, ¨rC2011 ...Post your question

0