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Problem 6.1. What is the appropriate yield to maturity for a $1000 par value bond selling for $1120 that matures in 6 years and pays 12% interest annually?
Hint: Use your critical analysis and trial-error method to estimate the yield to maturity. Provide all workings.
Problem 6.2. Find the value of a bond maturing in 4 years, with a $100 par value and a coupon interest rate of 6% (paid semi-annually). The required return of similar risk bonds is 14% (paid semi-annually). Is the bond valued at a discount, at par or at a premium to par? Explain your answer.
Hint: Use your critical analysis and trial-error method to estimate the yield to maturity. Provide all workings.
Problem 6.2. Find the value of a bond maturing in 4 years, with a $100 par value and a coupon interest rate of 6% (paid semi-annually). The required return of similar risk bonds is 14% (paid semi-annually). Is the bond valued at a discount, at par or at a premium to par? Explain your answer.
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