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    The Heymann Company's bonds

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    The Heymann Company's bonds have 4 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. What is the yield to maturity at a current market price of (1) $829 or (2) $1,104?

    b. Would you pay $829 for one of these bonds if you thought that the appropriate rate of of interest was 12 percent---that is, if rd= 12%? Explain your answer.

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    Solution Preview

    We need to calculate how much the bonds have been issued by using the formula as follows: -

    where B is the issued price
    C is the coupon payment
    r is the discount or yield rate
    n is the period

    Because we need to find the yield to maturity, we need to replace the information given into the equation and calculate for the yield to maturity.

    C, which is the annual coupon payment, can be calculated by ...

    Solution Summary

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