please answer A B & C eCSecure | https/ com/Student/PlayerHomework.aspxthomework
ID: 2617010 • Letter: P
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please answer A B & C
eCSecure | https/ com/Student/PlayerHomework.aspxthomeworkld 4814501518questionld-78flushed-falseBicled FIN-320-X5416 Principles of Finance 18Ews Charlene Foster/20/18 1:48 PM Homework: 7-1 MyFinanceLab Assignment Save Score: 1 of 4 pts 47 of 12 (7 complete) MN Score: 40%, 20 of 50 pts P9-13 (similar to) uestion Help * Related to Checkpoint 3.2 and Checkpoint 9.3) Bond valuation) Fingen's 17-year $100 par value bonds pay 8 percetinterest annuaily, The market prce af te bond $1070 amnd e yield to maturity on a comparable-risk bond is 9 percent a. Compute the bond's yield to maturity b. Determine the value of the bond to you, given your required rate of return c. Should you purchase the bond? a. What is your yield to matunity on the Fingen bonds given the market price of the bonds? DJs (Round to two decimal places)Explanation / Answer
Requirement (a) – Bond’s Yield To Maturity [YTM] = 7.27%
YTM = Coupon Amount + [ (Par Value – Bond Price) / Maturity Years ] / [(Par Value + Bond Price)/2]
= $80 + [ ($1,000 - $1,070) / 17 ) ] / [($1,000 + $1,070) / 2]
= [$80 – 4.12 / $1,035] x 100
= 7.27%
Requirement (b) – Value of the Bond = $914.56
Value of the Bond = Present Value of Coupon Interest + Present Value of Par Value
= { $80 x [ PVIFA 9% , 17 Years ] } + { $1,000 x [ PVIF 9%, 17 Years ] }
= [ $80 x 8.543631] + [ $1,000 x 0.231073]
= $ 683.49 + 231.07
= $914.56
Requirement (c) – We should not purchase the Bond, We Should sell the Bond. If at anytime, the Present Value of the Bond is less than it’s Par Value, We should sell it off. Here the present Value of the Bond ($914.56) is less than it’s Par Value of $1,000
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