What is the YTM of a $1,000 par value bond with a 10% coupon rate, semi-annual c

Question

What is the YTM of a $1,000 par value bond with a 10% coupon rate, semi-annual coupon payments, and 9 years to maturity if the bond currently sells for $900? Round to the nearest hundredth percent. Do not include a percent sign in your answer. (i.e. If your answer is 4.32%, then type 4.32 without a % sign)

You are purchasing a bond that currently sold for $1,085.36. it has the time-to-maturity of 12 years and a coupon rate of 7%, paid semi-annually. The bond can be called for $1,040 in 3 years. What is the yield to maturity of this bond? Round to the nearest hundredth percent. Do not include a percent sign in your answer. (i.e. If your answer is 4.32%, then type 4.32 without a % sign)

Yesterday, bonds for Risky Corp were traded for the yield-to-maturity of 6.44%, which were downgraded by S&P from BBB to BB today. If everything else is constant from yesterday (expected inflation rate etc.), the bonds' YTM should be:

a. lower than the coupon rate.

b. lower than the current yield.

c. higher than 6.44%.

d. the same as yesterday.

e. None of the above

Current interest rates are 8%. You want to buy a long-term bond with a face value of $1000 that pays a coupon rate of 10%. Which of the following prices is feasible?

a. $888.88

b. $1,000.00

c. $1,111.11

d. Not enough information to answer.

e. None of the above is feasible.

a. lower than the coupon rate.

b. lower than the current yield.

c. higher than 6.44%.

d. the same as yesterday.

e. None of the above

Current interest rates are 8%. You want to buy a long-term bond with a face value of $1000 that pays a coupon rate of 10%. Which of the following prices is feasible?

a. $888.88

b. $1,000.00

c. $1,111.11

d. Not enough information to answer.

e. None of the above is feasible.

Explanation / Answer

1)

Coupon payment = 0.1 * 1000 = 100 / 2 = 50

Number of periods = 9 * 2 = 18

YTM using a financial calculator = 11.84

Keys to use in a financial calculator: FV 1000, PV -900, N 18, PMT 50, CPT I/Y

2)

Number of periods = 12 * 2 = 24

Coupon = 0.07 * 1000 = 70 / 2 = 35

YTM using a financial calculator = 5.99

Keys to use in a financial calculator: FV 1000, PV -1085.36, N 24, PMT 35, CPT I/Y

Note: I am also caclualting yield to call below just in case

Number of periods = 3 * 2 = 6

Coupon = 0.07 * 1000 = 70 / 2 = 35

Yield to call using a financial calculator = 5.14

Keys to use in a financial calculator: FV 1040, PV -1085.36, N 6, PMT 35, CPT I/Y

3)

c. higher than 6.44%.

When the ratings gets downgraded, the bond will become riskier. This leads to higher return from investors which leads to a higher yield to maturity.

4)

d. Not enough information to answer.

Number of years to maturity is missing.

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