7-5A. (Bondholder's expected rate ofreturn) XYZ International's bonds mature in 12 years and pay 7 percent interest annually. If you purchase the bonds for $1,150, what is your expected rate of return?

v7-6A. (Bond valuation) Waco Industries IS-year, $1,000 par vdlue bonds pay 8 percent interest annually. The market price of the bonds is $1,085, and your required rate of return is 10 percent.

a. Compute the bond's expected rate of return.

b. Detennine the value of the bond to you, given your required rate of return.

c. Should you purchase the bond?