Answer:
maximum sum of $891.00
Explanation:
given data
Face Value = $1,000
Annual Coupon Rate = 9.50%
Time to Maturity = 15 years
yield to maturity = 11%
to find out
maximum price you should be willing to pay for the bond
solution
we know that Semiannual Coupon Rate will be = 4.75%
so semiannual Coupon will be = Semiannual Coupon Rate × Face Value
semiannual Coupon = 4.75% × $1,000
Semiannual Coupon = $47.50
and Semiannual Period will be for 15 year = 30
and Semiannual yield to maturity will be here YTM = 5.50%
so
Current Price will be here
Current Price = Semiannual Coupon × 
+ 
...................1
put here value
Current Price = $47.50 × 
+ 
Current Price = $891.00
so pay a maximum sum of $891.00
Answer:
since you are required to calculate the effective yield to maturity, you cannot use the approximate YTM formula since it is not exact. You will need to use a financial calculator, online calculator or excel spreadsheet. I prefer to use an excel spreadsheet and use the IRR function:
a) initial outlay = -$970
cash flows 1 - 19 = $80
cash flow 20 = $1,080
IRR = 8.31%
Since the bond is sold at a discount, the effective yield will be higher than the coupon rate.
b) if hte bond is sodl at par, the effective yield to maturity is the coupon rate = 8%
c) initial outlay = -$1,170
cash flows 1 - 19 = $80
cash flow 20 = $1,080
IRR = 6.49%
Since the bond is sold at a premium, the effective yield will be lower than the coupon rate.
C. car financing because it’s something you pay monthly
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