1. ?(Bond valuation?) You own a 20?-year, $1, 000 par value bond paying 8 percent interest annually. The market price of the bond is $850?, and your required rate of return is 11 percent.

a. Compute the? bond's expected rate of return.

b. Determine the value of the bond to? you, given your required rate of return.

c. Should you sell the bond or continue to own? it?

a. What is the expected rate of return of the 20?-year, $1, 000 par value bond paying 8 percent interest annually if its market price is $850?? ?% (Round to two decimal? places.) ANSWER:

b. What is the value of the bond to? you, given your 11 percent required rate of? return? ?$?(Round to the nearest? cent.) ANSWR:

c. Should you sell the bond or continue to own? it? (Select the best choice? below.) ANSWER:

A. You should sell the bond because the? bond's yield to maturity is higher than your expected rate of return and thus it is undervalued.

B. You should continue to hold the bond because the? bond's yield to maturity is higher than your expected rate of return and thus it is undervalued.

C. You should sell the bond because the? bond's yield to maturity is lower than your expected rate of return and thus it is overvalued.

D. You should continue to hold the bond because the? bond's yield to maturity is lower than your expected rate of return and thus it is overvalued.

2. ?(Bond valuation?) Bellingham bonds have an annual coupon rate of 6 percent and a par value of $ 1, 000 and will mature in 25 years. If you require a return of 13 percent, what price would you be willing to pay for the? bond? What happens if you pay more for the? bond? What happens if you pay less for the? bond?

a. The price you would be willing to pay for the bond is $?(Round to the nearest? cent.) ANSWER:

b. The bond is not an acceptable investment if you pay ANSWER:

less

more

for the bond because the expected rate of return for the bond is ANSWER:

less

greater

than your required rate of return.  ?(Select from the? drop-down menus.)