(Bond

valuation)

National Steel's

15

-year,

$1 comma 000

par value bonds pay

5.5

percent interest annually. The market price of the bonds is

$1 comma 085

,

and your required rate of return is

7

percent.

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

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

c. Should you purchase the bond?