Ch $07-$ End$-$of$-$Chapter Problems $-$ Bonds and Their Valuation

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Attempts $$ Keep the Highest $/3$

$4.$ Problem $7\mathrm{.}09($Yield to Maturity$)$

$$

Harrimon Industries bonds have $4$ years left to maturity. Interest is paid annually, and the bonds have a $$1,000$ par value and a coupon rate of $9\%.$

a$.$ What is the yield to maturity at a current market price of

$$868?$ Round your answer to two decimal places.

$q,\%$

$$1,116?$ Round your answer to two decimal places.

$\%$

b$.$ Would you pay $$868$ for each bond if you thought that a "fair" market interest rate for such bonds was $12\%-$that is$,$ if $r_d=12\%?$

I. You would buy the bond as long as the yield to maturity at this price equals your required rate of return.

II$.$ You would not buy the bond as long as the yield to maturity at this price is greater than your required rate of return.

III. You would not buy the bond as long as the yield to maturity at this price is less than the coupon rate on the bond.

IV$.$ You would buy the bond as long as the yield to maturity at this price is greater than your required rate of return.

V$.$ You would buy the bond as long as the yield to maturity at this price is less than your required rate of return.