 Business
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?

0
1. 20 July, 04:26
0
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