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YIELD TO MATURITY Harrimon Industries bonds have 6 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and

YIELD TO MATURITY

Harrimon Industries bonds have 6 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 10%.

a. What is the yield to maturity at a current market price of (1) $865 and (2) $1,166?

b. Would you pay $865 for each bond if you thought that a "fair" market interest rate for such bonds was 12%that is, if r_d = 12%? Explain your answer.

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