The Saleemi​ Corporation's ​$1 comma 000 bonds pay 11 percent interest annually and have 14 years until maturity.  You can purchase the bond for ​$1 comma 075.
a.  What is the yield to maturity on this​ bond?
b.  Should you purchase the bond if the yield to maturity on a​ comparable-risk bond is 11 ​percent?                              Question content area top
Part 1
​(Related to Checkpoint​ 9.2)  ​(Yield to​ maturity)  The Saleemi​ Corporation's ​$1 comma 000 bonds pay 11 percent interest annually and have 14 years until maturity.  You can purchase the bond for ​$1 comma 075.
a.  What is the yield to maturity on this​ bond?
b.  Should you purchase the bond if the yield to maturity on a​ comparable-risk bond is 11 ​percent?
Question content area bottom
Part 1
a.  The yield to maturity on the Saleemi bonds is

enter your response here​%. ​ (Round to two decimal​ places.)

### 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.

The Saleemi Corporation's $1,000 bonds pay 11 percent interest annually and have 14 years until maturity. You can purchase the bond for $1,075.

(a) What is the yield to maturity on this bond?
(b) Should you purchase the bond if the yield to maturity on a comparable-risk bond is 11 percent?

Learn how to calculate the Yield to Maturity (YTM) for Saleemi Corporation's $1,000 bond, which pays 11% interest annually and has 14 years until maturity. Discover whether it's a good investment compared to a comparable bond yielding 11%. This step-by-step guide covers bond valuation, YTM calculation, and investment decision-making for finance students.

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