You are considering purchasing a corporate bond as a graduation gift for one of your friends....
You are considering purchasing a corporate bond as a graduation gift for one of your friends. You look online at FINRA’s website and see that the last bid price on Apple bonds was $955.14 and the last ask price on Apple bonds was $956.14 . The face value of the bond is $1,000 and the coupon payment is $80 per year.
3a. Explain the difference between the bid price and ask price.
3b. Using the bid price as the bond’s current price, if bonds were mature in six years, what is the yield to maturity? Hint: you must use Excel for this.
Homework Answers
3a The difference in the bid ad ask price is the profit which
the broker makes. They buy at less price which is the bid price and
sell at a higher price which is the ask price . They gain from the
difference in price.
3b. Bid Price =955.14
Number of Periods =6
FV =1000
PMT or coupons =80
YTM using excel function =RATE(6,80,-955.14,1000) =9%
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