The 7-year $1,000 par bonds of Vail Inc. pay 12 percent interest. The market’s required yield to maturity on a comparable-risk bond is 13 percent. The current market price for the bond is $880.
a. Determine the yield to maturity.
b. What is the value of the bonds to you given the yield to maturity on a comparable-risk bond?
c. Should you purchase the bond at the current market price?