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How can I work this out to understand it better?
How can I work this out to understand it better?
You are asked to value the following corporate bond issued by ABCD Corp.: Face value = $1,000. Annual coupon (compounded semiannually) = $30. Maturity = 10 years.
You came to the conclusion that the (Annual Percentage) rate of return you are entitled to earn would be the rate that earns the SAME default spread over TODAY'S risk-free rate as the average default spread for the bonds of the "BB+" S&P rating.
A) What should be today's price of the bond?
B) Instead, today's Wall Street Journal shows that today's price of the bond is $910.75.
a. What is today's Yield to Maturity (YTM) for the bond?
b. Should you buy the bond? Why or why not?
