Question
The Niagara Hotel Corporation issued a new series of bonds January 1, 1998. The bonds were sold at par ($1,000), had a 10.5% coupon, and
The Niagara Hotel Corporation issued a new series of bonds January 1, 1998. The bonds were sold at par ($1,000), had a 10.5% coupon, and mature in 30 years, on December 31, 2027. Coupon payments are made semi-annually (on June 30 and December 31). a. What was the Yield to Maturity on January 1 1998. b. What was the price of the bonds on January 1, 2003, 5 years later assuming the interest rates had fallen to 8%. c. Find the current yield given the price as determined in part b. d. On July 1, 2021, 6.5 years before maturity, you purchased the bonds for $895.10. What was the YTM? What is the current yield? e. Now, assume that when you purchased that outstanding Niagara Hotel Corporation bond on July 1, 2021, the going rate of interest was 13.0%. Did you pay too much for that bond, or did you get a deal? Why or why not? Remember to show your work.
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