A bond with a face value of $1,000 matures in 9 years and has a 7% semiannual co

Question

A bond with a face value of $1,000 matures in 9 years and has a 7% semiannual coupon. The bond currently sells for $846.

You would pay $846 for each bond if you think that a “fair” market interest rate (discount rate) for such bonds is ____. (hint: find out what is the nominal yield to maturity first) (Please Show work and calculation which led to the solution of the problem)

a) 10.24%
b) 12.53%

c) 11.28%

d) 8.67%

e) 15.60%

A bond with a face value of $1,000 matures in 9 years and has a 7% semiannual coupon. The bond currently sells for $846.

Explanation / Answer

We need to find the YTM in order to tell the market interest rate.

Approx. YTM = [C + (F-P)/n] / [(F+P)/2] = [70 + (1,000-846)/9] / [(1,000+846)/2] = 9.64%

Note: Please review the options since 9.64% is the only possible answer with the given data.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.