Question

Using HP 10b11 financial calculator. Need Variables to input into cal.

Bonds have 5 years to maturity. Par value of $1,000, coupon interest rate of 7%. (a) What is the bonds’ yield-to-maturity at a current price of $929? (b) What is the bonds’ yield-to-maturity at a current price of $1,032? (c) Would you pay $929 for one of these bonds if you thought that the appropriate rate of interest (i.e., your required rate of return) was 8%?

Answer 1

a.

Calculating Yield to Maturity,

Using TVM Calculation,

I = [PV = -929, FV = 1,000, PMT = 70, N = 5]

I = 8.82%

b.

Calculating Yield to Maturity,

Using TVM Calculation,

I = [PV = -1,032, FV = 1,000, PMT = 70, N = 5]

I = 6.24%

c.

If Required Rate is 8% it is goo to buy bond at $929 as at that price Expected Rate is 8.82%