Problem (5-10). Yield to Maturity and Required Returns:

The Brownstone Corporation's bond have 5 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 per value, and the coupon interest rate is 9%.

a. What is the yield to maturity at a current market price of: (1) $829 or (2) $1,104?

b. Would you pay $829 for one of these bonds if you thought that the appropriate rate of interest was 12% - that is, if rd = 12%? Explain your answer.

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