A stock is quoted at $1,180. The $1,000 par value bond pays 14% interest, and it has 25 years remaining until maturity. The current yield to maturity on similar bonds is 12%. Compute the new price of the bond and comment on whether you think it is overpriced in the marketplace

Answer 1

You are getting 140 dollars on the face value bond. You are getting 140 dollars on the market value 1180,which is 11.86 percent. It is slightly overpriced. At twelve percent, it should be priced at 1167 dollars.