After analyzing the default risk for a five-year bond with a maturity value of $1,000 and an

Question:

After analyzing the default risk for a five-year bond with a maturity value of $1,000 and an 8 percent annual coupon, an analyst estimates the required return for the bond at 7 percent per year. The bond has just been issued at a price of $1,000.

a. What is the value of the bond at a 7 percent required return?

b. What is the yield-to-maturity with a market price of $1,000?

c. What is the expected return of buying the bond at a price of $1,000?

d. Does the analyst think that the bond is appropriately priced by the bond market?

Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...