Harrimon Industries bonds have 6 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value anda coupon rate of 10%.a. What is the yield to maturity at a current market price of1. $879? Round your answer to two decimal places.13.03 %2. $1,246? Round your answer to two decimal places.%b. Would you pay $879 for each bond if you thought that a "fair" market interest rate for such bonds was 12%-that is, if rd= 12%?I. You would buy the bond as long as the yield to maturity at this price is less than your required rate of return.II. You would buy the bond as long as the yield to maturity at this price equals your required rate of return.III. You would not buy the bond as long as the yield to maturity at this price is greater than your required rate of return.IV. 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.V. You would buy the bond as long as the yield to maturity at this price is greater than your required rate of return.-Select- v

Yield to maturity is defined as the total return, which used to get anticipated on the bond when the…

Answered: Harrimon Industries bonds have 6 years…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 9P

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Krystian Inc. issued 10-year bonds with a face value of $100,000 and a stated rate of 4% when the market rate was 6%. Interest was paid semi-annually. Calculate and explain the timing of the cash flows the purchaser of the bonds (the investor) will receive throughout the bond term. Would an investor be willing to pay more or less than face value for this bond?
Yield to Maturity and Yield to Call Arnot International’s bonds have a current market price of $1,200. The bonds have an 11% annual coupon payment, a $1,000 face value, and 10 years left until maturity. The bonds may be called in 5 years at 109% of face value (call price = $1,090). What is the yield to maturity? What is the yield to call if they are called in 5 years? Which yield might investors expect to earn on these bonds, and why? The bond’s indenture indicates that the call provision gives the firm the right to call them at the end of each year beginning in Year 5. In Year 5, they may be called at 109% of face value, but in each of the next 4 years the call percentage will decline by 1 percentage point. Thus, in Year 6 they may be called at 108% of face value, in Year 7 they may be called at 107% of face value, and so on. If the yield curve is horizontal and interest rates remain at their current level, when is the latest that investors might expect the firm to call the bonds?
Harrimon Industries bonds have 6 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 10%. a. What is the yield to maturity at a current market price of 1. $819? Round your answer to two decimal places. % 2. $1,170? Round your answer to two decimal places. % b. Would you pay $819 for each bond if you thought that a "fair" market interest rate for such bonds was 14%-that is, if rd = 14%? I. 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. II. You would buy the bond as long as the yield to maturity at this price is greater than your required rate of return. III. You would buy the bond as long as the yield to maturity at this price is less than your required rate of return. IV. You would buy the bond as long as the yield to maturity at this price equals your required rate of return. V. You would not buy the bond as long as the yield to maturity at this price is…
Harrimon Industries bonds have 5 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 10%. a. What is the yield to maturity at a current market price of 1. $877? Round your answer to two decimal places. % 2. $1,205? Round your answer to two decimal places. % b. Would you pay $877 for each bond if you thought that a "fair" market interest rate for such bonds was 13%-that is, if rd = 13%? I. 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. II. You would buy the bond as long as the yield to maturity at this price is greater than your required rate of return. III. You would buy the bond as long as the yield to maturity at this price is less than your required rate of return. IV. You would buy the bond as long as the yield to maturity at this price equals your required rate of return. V. You would not buy the bond as long as the yield to maturity at this price is…

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