1.

Harrimon Industries bonds have 6 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 9%.

a. What is the yield to maturity at a current market price of

1.$782? Round your answer to two decimal places.

%

2.$1,129? Round your answer to two decimal places.

%

b. Would you pay $782 for each bond if you thought that a "fair" market interest rate for such bonds was 14%that is, if r_d = 14%?

SELECT:

I. You would buy the bond as long as the yield to maturity at this price is less than your required rate of return.

II. You would buy the bond as long as the yield to maturity at this price equals your required rate of return.

III. You would not buy the bond as long as the yield to maturity at this price is greater than your required rate of return.

IV. You would not buy the bond as long as the yield to maturity at this price is less than the coupon rate on the bond.

V. You would buy the bond as long as the yield to maturity at this price is greater than your required rate of return.

2. A firm's bonds have a maturity of 8 years with a $1,000 face value, have an 11% semiannual coupon, are callable in 4 years at $1,153.78, and currently sell at a price of $1,282.07. What are their nominal yield to maturity and their nominal yield to call? Do not round intermediate calculations. Round your answers to two decimal places.

YTM: %

YTC: %

What return should investors expect to earn on these bonds?

SELECT:

I. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM.

II. Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC.

III. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC.

IV. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM.