A 15-year maturity bond with face value of $1,000 makes annual coupon payments a

Question

A 15-year maturity bond with face value of $1,000 makes annual coupon payments and has a coupon rate of 6%.

What is the bond’s yield to maturity if the bond is selling for $1,110? (Do NOT round intermediate calculations. Round your answer to 3 decimal places.)

Yield to Maturity: ___%

What is the bond’s yield to maturity if the bond is selling for $1,000?

Yield to Maturity: ___%

What is the bond’s yield to maturity if the bond is selling for $1,310? (Do NOT round intermediate calculations. Round your answer to 3 decimal places.)

Yield to Maturity: ___%

Explanation / Answer

When Bond is selling at 1110

Future Value = 1000, Interest payment = 1000*6% = 60 , N = 15 years, Present Value = 1110

Present Value of outflows = Coupon payment PVIFA (r, n) + principal Payment PVIF(r%,n)

1110 = 60 PVIFA ( r%,15,) + 1000 PVIF( r%,15)

So , now by intrapolation finding such values for r,  which would equate both the sids of the equation

r = 4.94%

The coupon rate > Yield , which means bond is selling at premium, that is why the price of the bond is trading at more than face value of 1000

B) When , bond is trading at 1000, means it is trading at par . which means coupon payment = yield to maturity

so, YTM = 6%

C)When, bond is trading at 1310

PV of outflows = PV of inflows

1310 = 60 PVIFA (r%, 15) + 1000 PVIF (r%,15)
By intrapolation

r = 3.339%

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