Question
Jim Busby calls his broker to inquire about purchasing a bond of Disk Storage Systems. His broker quotes a price of $1,110. Jim is concerned
Jim Busby calls his broker to inquire about purchasing a bond of Disk Storage Systems. His broker quotes a price of $1,110. Jim is concerned that the bond might be overpriced based on the facts involved. The $1,000 par value bond pays 11 percent interest, and it has 16 years remaining until maturity. The current yield to maturity on similar bonds is 9 percent. a. Calculate the present value of the bond. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual.)
b. Do you think the bond is overpriced?
No | |
Yes |
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