RG Coffee House issued a $1,000 par value bond that pays a 9 percent interest annually. The bond matures in 14 years and is currently selling at $1,120. Your required rate of return is 8.5 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 purchase the bond? Why?