A 25-year maturity bond with face value of $1,000 makes semiannual coupon paymen
ID: 2736416 • Letter: A
Question
A 25-year maturity bond with face value of $1,000 makes semiannual coupon payments and has a coupon rate of 8%.
What is the bond’s yield to maturity if the bond is selling for $1,010? (Do not round intermediate calculations. Round your answer to 3 decimal places.)
What is the bond’s yield to maturity if the bond is selling for $1,210? (Do not round intermediate calculations. Round your answer to 3 decimal places.)
A 25-year maturity bond with face value of $1,000 makes semiannual coupon payments and has a coupon rate of 8%.
Explanation / Answer
There are semi- annual coupon payments therefore rate will be half and the time will be doubled
A) YTM = Interest + ( Maturity Value - Face Value ) Number of years to maturity
( Maturity Value - Face Value ) / 2
= 40 + ( 1010- 1000 ) 2 * 25 (1010 + 1000 ) / 2
= 40 + 0.20 1005 = 4 % ( half yearly )
Annual Yield to Maturity is = 4 * 2 = 8 %
B )
40 + ( 1000- 1000 ) 2 * 25 (1000 + 1000 ) / 2
= 40 1000 = 4 % ( half yearly )
Annual Yield to Maturity is = 4 * 2 = 8 %
c ) YTM =
= 40 + ( 1210- 1000 ) 2 * 25 (1210 + 1000 ) / 2
= 40 + 4.20 1105 = 4 % ( half yearly )
Annual Yield to Maturity is = 4 * 2 = 8 %
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