Three years ago, ABC Company issued 10-year bonds that pay 14% semiannually. Assume that the bond has a $1,000-par-value.

a.If the bond currently sells for $1,049, what is the yield to maturity (YTM) on this bond?

b.If you are expecting the interest rate to drop in the near future and you want to gain profit by speculating on a bond, will you buy or sell this bond? Explain.

Question content area bottom

Part 1

a. The yield to maturity on this bond is enter your response here%.

(Round to three decimal places.)

Part 2

b. If you are expecting the interest rate to drop in the near future and you want to gain profit by speculating on a bond, will you buy or sell this bond? Explain. (Select the best answer below.)

A.

You should buy the bond. The relationship between bond price and bond yield is inverse. If the interest rate drops in the near future, the bond price will increase.

B.

You should not buy the bond. The relationship between bond price and bond yield is direct. If the interest rate drops in the near future, the bond price will decrease.

I HAVE 15 MIN THUMBS UP GURANTEE