Question

3. Hacker Software has 10.4 percent coupon bonds on the market with 16 years to maturity. The bonds make semiannual payments and currently sell for 108 percent of par.

What is the current yield on the bonds? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Current yield

%

What is the YTM? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

YTM

%

What is the effective annual yield? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Effective annual yield

%

4.

The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY).

a.	Suppose that today you buy a bond with an annual coupon of 8 percent for $1,100. The bond has 15 years to maturity. What rate of return do you expect to earn on your investment? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Expected rate of return

%

b-1.	Two years from now, the YTM on your bond has declined by 1 percent, and you decide to sell. What price will your bond sell for? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.

Bond price

$

b-2.	What is the HPY on your investment? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

HPY	%

Answer 1

COUPON RATE 10.40% YEARS TO MATURITY NPER 32 (years to maturity x 2) PMT 52 (face value x coupon rate)/2 FACE VALUE $1,000.00 PRICE = PV = $1,080.00 RATE = 4.71% rate(nper,pmt,-pv,fv) rate(32,52,-1080,1000) YIELD = RATE X 2 = 9.42% [ 4.71%*2) Current yield 9.63% [52/1080 ] Yield to maturity 9.42% Effective annual YTM = 9.64% ((1+9.42%/2)^2-1]