A fund manager is required to submit an investment proposal to the Investment Committee on the merits of investing in ABC Corp. As an investment analyst supporting the team, you have been asked to assist in analysing the bonds and common stock of the company.

You have found the company to have a target capital structure of 70% equity and 30% debt, and gathered the following information:

Current price of bonds: 97% of par

Bonds par value: $1000

Coupon rate: 8%

Earnings per share- most recent year:$2.00

Expected growth rate of dividends:5.10%

Dividend payout ratio: 60%

Required rate of return: 12.60%

Current price of common stock: $18

The bonds were issued 10 years ago, and mature 15 years from today. Coupon payments are distributed annually. Analyse the YTM of the bonds (including the verification of your answer with an appropriate Excel function), and the circumstances where bonds will be trading at discount, premium or at par.