If the bond is selling for $1,300 what is the yield to maturity? Would the YTM reflect long-term rates, or short-term rates? Explain.

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Hello,

Please help me with this:

  1.  Ellison company just issued a bond with 15%

annual coupon interest rate on a $1,000 par value bond with 15 years left to maturity. Bonds of same maturity now sell to yield 13% return

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(a) How much would you be willing to pay for one of these bonds today? Why?

(b) If the bond is selling for $1,300 what is the yield to maturity? Would the YTM reflect long-term rates, or short-term rates? Explain.

(c) What is the relationship between the price of the bond and its YTM, and the risk and it’s YTM?

Thanks

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