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11 September, 06:54

Dane purchased a 15-year, 10% bond in 2014. At the time, the yield to maturity (YTM) on the bond was 8.8%. The bond currently sells for $890. Assuming the bond is priced correctly, how does Dane's rate of return on the bond compare to the current YTM? Group of answer choices Rate of return > current YTM Rate of return = current YTM = 8.8% Rate of return < current YTM Rate of return = current YTM = 10%

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  1. 11 September, 07:57
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    Rate of return < current YTM

    Explanation:

    In order to determine whether the current YTM is greater or less, we need to first of all determine the current YTM using excel rate formula as shown below:

    =rate (nper, pmt,-pv, fv)

    nper is the number of coupon payments the bond pay which is 15

    pmt is the annual coupon payment of $100 (10%*$1000)

    pv is the current price of $890

    fv is the face value of $1000

    =rate (15,100,-890,1000) = 11.58%

    Since the rate of return is 8.8% while the current YTM is 11.58%, the third option is correct
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