Yield to Maturity for 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%.
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 interest was 12% - that is, if rd = 12%? Explain your answer
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Solution Summary
This solution is comprised of a detailed explanation to find the yield to maturity for Heymann Company's bonds at different current market prices.
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a. What is the yield to maturity at a current market price of (1) $829 or (2) $1,104?
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 ...
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