Part 1: Yield to Maturity (YTM)

The Yield to Maturity (YTM) is the interest rate that equates the present value of the bond's future cash flows to its current price. The formula to calculate YTM approximately is as follows:

$\text{YTM} \approx \frac{C + \frac{F - P}{n}}{\frac{F + P}{2}}$

Where:

• $C$ = Annual coupon payment = 11% of $1,000 = $110
• $F$ = Face value of the bond = $1,000
• $P$ = Price of the bond = $1,075
• $n$ = Number of years to maturity = 14

We can plug the values into this formula.

$\text{YTM} \approx \frac{110 + \frac{1,000 - 1,075}{14}}{\frac{1,000 + 1,075}{2}}$

Let's compute this step-by-step.

Part 2: Bond Purchase Decision

Once we calculate the YTM, we will compare it with the yield on a comparable-risk bond, which is 11%. If the YTM of the Saleemi bond is greater than 11%, it is a good investment; otherwise, it's not.

Let me calculate the YTM for you now.### Part 1: Yield to Maturity (YTM) The yield to maturity (YTM) on the Saleemi bond is approximately 10.09%.

Part 2: Should you purchase the bond?

Since the YTM of the Saleemi bond (10.09%) is less than the yield on a comparable-risk bond (11%), it would not be advisable to purchase this bond, as you could potentially earn a higher return with the comparable bond.

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Do you have any questions or want further clarification? Here are some related questions to explore:

1. How does bond price affect the yield to maturity?
2. What is the difference between yield to maturity and current yield?
3. How does time to maturity impact the bond's sensitivity to interest rates?
4. What other factors should be considered when deciding whether to invest in a bond?
5. What is the impact of a callable bond on yield to maturity?

Tip: When bond prices increase, the yield to maturity decreases, as the fixed coupon payments represent a smaller return relative to the price you paid.