Jim Busby calls his broker to inquire about purchasing a bond of Disk Storage Systems. His broker
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Question:
Jim Busby calls his broker to inquire about purchasing a bond of Disk Storage Systems. His broker quotes a price of $1,280. Jim is concerned that the bond might be overpriced based on the facts involved. The $1,000 par value bond pays 8 percent interest, and it has 25 years remaining until maturity. The current yield to maturity on similar bonds is 5 percent. Compute the new price of the bond and comment on whether you think it is overpriced in the marketplace.
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