The Severn Companys bonds have four years remaining to maturity. Interest is paid annually, the bonds have

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.

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...