question archive Tool are considering the purchase of a bond that pays If percent coupon interest per year, pald semlannually (le

Tool are considering the purchase of a bond that pays If percent coupon interest per year, pald semlannually (le

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Tool are considering the purchase of a bond that pays If percent coupon interest per year, pald semlannually (le., 51 percent per semiannual perlod ). The bond matures In 15 years and has a face value of $1,000. If the current market price of the bond Is $931.176, the yleld to maturity (or Err) Is calculated as follows : 931 176 = (1,000 (0.11 ))/2(PVA 12,15 2 + 1,000 (PV 1 /2.15 (1 Solving for ym , the yield to maturity (or expected rate of return ) on the bond is 12 percent 3 Equivalently you would be willing to buy the bond only If the required rate of return ( ) was no more than 12 percent .

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