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20 July, 03:24

Suppose a ten-year, $ 1 comma 000 bond with an 8.9 % coupon rate and semiannual coupons is trading for $ 1 comma 035.67. a. What is the bond's yield to maturity (expressed as an APR with semiannual compounding) ? b. If the bond's yield to maturity changes to 9.4 % APR, what will be the bond's price?

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  1. 20 July, 04:26
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    Bond's yield to maturity = 7.60%

    Bond's price = $ 904.93

    Explanation:

    Suppose a ten-year, $1,000 bond with an 8.1% coupon rate and semi-annual coupons is trading for $1,034.69

    A. What is the bond's yield to maturity (expressed an an APR with semi-annual compounding) ?

    fv = 1000, pmt = 8.1%*1000*1/2 = 40.50, pv = 1034.69, nper = 10*2 = 20

    Rate = rate (nper, pmt, pv, fv)

    Rate = rate (20,40.50,-1034.69,1000)

    Rate = 3.80%

    Bond's yield to maturity = 3.80*2 = 7.60%

    B. If the bond's yield to maturity changes to 9.6% APR, what will be the bond's price?

    fv = 1000, pmt = 8.1%*1000*1/2 = 40.50, nper = 10*2 = 20, rate = 9.6/2 = 4.8%

    Bond's price = pv (rate, nper, pmt, fv)

    Bond's price = pv (4.8%,20,40.50,1000)

    Bond's price = $ 904.93
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