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A3-18) You are currently holding a corporate bond. It has a remaining life of exactly 25...

A3-18) You are currently holding a corporate bond. It has a remaining life of exactly 25 years till maturity. It has a coupon rate of 4.5% (nominal rate compounded semi annually and a face value of $1000. Currently the market is demanding a nominal rate of 6% compounded semi-annually on bonds with similar risk and maturity date.

A) If you are thinking of selling the bond today, what is the current value of the bond?

B) If you paid $900 for the bond today, what would be your "Yield to Maturity" YTM on this investment?

C) Based on the same $900 purchase price today, what is the bonds "Current Yield"?

Im having trouble figuring out where the coupon rate fits into the problem.

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Answer #1

Calcualte the YTM as follows -RATE (25*2,1000*4.5%/2,900,-1000) Function Arguments RATE Nper 25*2 = 50 Pmt -1000*4.5%/2 -22.5 Pv 900 = 900 Fv -1000 1000 number Type 0.026104014 Returns the interest rate per period of a loan or an investment. For example, use 6%/4 for quarterly payments at 6% APR. is the future value, or a cash balance you want to attain after the last payment is made. If omitted, uses Fv0 Fv Formula result 0.026104014 OK Cancel Therefore, the YTM for semiannual period is 2.6104% Therefore, the YTM for annual period is 2.6104%*2 5.22%Calculate the current yield as follows Current yield-Coupon amount/current price -(1000*4.5%) 900 0.05 or 5% Therefore, the current yield is| 500

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