A $1,000 par value bond which pays $100 every year with five years to maturity i

Question

A $1,000 par value bond which pays $100 every year with five years to maturity is selling for $1,079. What is the approximate YTM on this bond (assume annual compounding). Question 19 options: 1) a. 7% 2) b. 8% 3) c. 9% 4) d. 10% A $1,000 par value bond which pays $100 every year with five years to maturity is selling for $1,079. What is the approximate YTM on this bond (assume annual compounding). A $1,000 par value bond which pays $100 every year with five years to maturity is selling for $1,079. What is the approximate YTM on this bond (assume annual compounding). 1) a. 7% 2) b. 8% 3) c. 9% 4) d. 10% 1) a. 7% 2) b. 8% 3) c. 9% 4) d. 10% 1) a. 7% 2) b. 8% 3) c. 9% 4) d. 10%

Explanation / Answer

Hi,

Please find the detailed answer as follows:

FV = 1000 (indicates the face value of bonds)

PMT = 100 (indicates annual payment)

PV = -1079 (indicates the present value)

Nper = 5 (indicates the period)

Rate = ? (indicates YTM)

YTM = Rate(Nper,PMT,PV,FV) = Rate(5,100,-1079,1000) = 8.02% or 8%

Option B (8%) is the correct answer.

Thanks.

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