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Homework answers / question archive / ?(Bond valuation)  The 9?-year ?$1,000 par bonds of Vail Inc

?(Bond valuation)  The 9?-year ?$1,000 par bonds of Vail Inc

Finance

?(Bond valuation)  The 9?-year ?$1,000 par bonds of Vail Inc. pay 13 percent interest. The? market's required yield to maturity on a? comparable-risk bond is 14 percent. The current market price for the bond is $1,050.

a.  Determine the yield to maturity.

b.  What is the value of the bonds to you given the yield to maturity on a? comparable-risk bond?

c.  Should you purchase the bond at the current market? price?

 

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

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

Here,

Rate = Yield to Maturity = ?

Nper = 9 years

PMT = $1,000*13% = $130

PV = $1,050

FV = $1,000

Substituting the values in formula:

=rate(9,130,-1050,1000)

Rate or Yield to Maturity = 12.06%

 

b. Computation of Value of Bonds using PV Function in Excel:

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

Here,

PV = Value of Bonds = ?

Rate = 14%

Nper = 9 years

PMT = $1,000*13% = $130

FV = $1,000

Substituting the values in formula:

=-pv(14%,9,130,1000)

PV or Value of Bond = $950.54

 

c. Since market value of bond is higher than book value of bond. So investor should not purchase the bond.

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