The Brownstone Corporation’s bonds have 5 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 9%.  What is the yield to maturity at a current market price of: (1) $829 or (2) $1,104? 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.

Question

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

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