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The Saleemi? Corporation's ?$1,000 bonds pay 8 percent interest annually and have 13 years until maturity
The Saleemi? Corporation's ?$1,000 bonds pay 8 percent interest annually and have 13 years until maturity. You can purchase the bond for ?$1,065.
a. What is the yield to maturity on this? bond?
b. Should you purchase the bond if the yield to maturity on a? comparable-risk bond is 9 ?percent?
Expert Solution
a. Computation of Yield to Maturing using Rate Function in Excel:
=rate(nper,pmt,-pv,fv)
Here,
Rate = Yield to Maturity = ?
Nper = 13 years
PMT = $1,000*8% = $80
PV = $1,065
FV = $1,000
Substituting the values in formula:
=rate(13,80,-1065,1000)
Rate or Yield to Maturity = 7.21%
b. Computation of Price of Bond using PV Function in Excel:
=-pv(rate,nper,pmt,fv)
Here,
PV = Price of Bond = ?
Rate = 9%
Nper = 13 years
PMT = $1,000*8% = $80
FV = $1,000
Substituting the values in formula:
=-pv(9%,13,80,1000)
PV or Price of Bond = $925.13
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