?(Bond valuation? relationships) The 19?-year, ?$1,000 par value bonds of Waco Industries pay 12 percent interest annually

a). We can calculate the yield to maturity by using the following formula in excel:-

=rate(nper,pmt,-pv,fv)

Here,

Rate = Yield to maturity

Nper = 19 periods

Pmt = Coupon payment = $1,000*12% = $120

PV = $1,145

FV = $1,000

Substituting the values in formula:

= rate(19,120,-1145,1000)

= 10.24%

b). We can calculate the value of bond by using the following formula in excel:-

=-pv(rate,nper,pmt,fv)

Here,

PV = Value of bond

Rate = 9%

Nper = 19 periods

Pmt = Coupon payment = $1,000*12% = $120

FV = $1,000

Substituting the values in formula:

=-pv(9%,19,120,1000)

= $1,268.50

c). We should purchase the bond as market price of the bond is $1,145 and value of the bond on given market's required yield to maturity on comparable risk bond is $1,268.50 so its means the bond is undervalued and we should purchase the bond.