A 30-year maturity bond with face value of $1,000 makes semiannual coupon paymen

Question

A 30-year maturity bond with face value of $1,000 makes semiannual coupon payments and has a coupon rate of 10%.

a. What is the bond’s yield to maturity if the bond is selling for $1,060? (Do not round intermediate calculations. Round your answer to 3 decimal places.)

b. What is the bond’s yield to maturity if the bond is selling for $1,000? (Do not round intermediate calculations.)

c. What is the bond’s yield to maturity if the bond is selling for $1,260? (Do not round intermediate calculations. Round your answer to 3 decimal places.)

Explanation / Answer

Using financial calculator we can find YTM for bond

N=30*2 (Semi Annual Payment) FV=$1000, PMT=$50( 10%/2*1000 Semi annual coupon payment)

a) Price=-$1060(We have to pay price to buy bond so -ve)

Putting all above values we get YTM/2= 4.699%

Thus YTM= 9.398%

b) Price= $1000

Putting all above values we get YTM/2= 5%

Thus YTM= 10%

c)

Price= -$1260

Putting all above values we get YTM/2= 3.877%

Thus YTM= 7.754%

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