(Bond valuation)  The 13?-year ?$1,000 par bonds of Vail Inc

a. Computation of Yield to Maturity using Rate Function in Excel:

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

Here,

Rate = Yield to Maturity = ?

Nper = Number of Years to Maturity = 13 years

PMT = Coupon Payment = $1,000*11% = $110

PV = Current Market Price = $1,130

FV = Face Value = $1,000

Substituting the values in formula:

=rate(13,110,-1130,1000)

Rate or Yield to Maturity = 9.24%

b. Computation of Value of the bonds to you given the yield to maturity on a? comparable-risk bond using PV Function in Excel:

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

Here,

PV = Value of Bond = ?

Rate = Yield to Maturity = 8%

Nper = Number of Years to Maturity = 13 years

PMT = Coupon Payment = $1,000*11% = $110

FV = Face Value = $1,000

Substituting the values in formula:

=-pv(8%,13,110,1000)

PV or Value of Bonds = $1,237.11

c) Yes bond should be purchased as derieved market price is more than actual market price.