QUESTION 1

PART B

(Related to Checkpoint 9.2 and Checkpoint 9.3) (Bond valuation relationships) The 19-year, $1,000 par value bonds of Waco Industries pay 8 percent interest annually. The market price of the bond is $1,095, and the market's required yield to maturity on a comparable-risk bond is 6 percent. a. Compute the bond's yield to maturity. b. Determine the value of the bond to you given the market's required yield to maturity on a comparable-risk bond. c. Should you purchase the bond? COND a. What is your yield to maturity on the Waco bonds given the current market price of the bonds? % (Round to two decimal places.) (Related to Checkpoint 9.6) (Inflation and interest rates) What would you expect the nominal rate of interest to be if the real rate is 4.5 percent and the expected inflation rate is 6.7 percent? ... The nominal rate of interest would be %. (Round to two decimal places.)