Question

do not round

Suppose a ten-year, $1,000 bond with an 8.8% coupon rate and semiannual coupons is trading for $1,034.15. 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 9.2% APR, what will be the bond's price?

Answer 1

a)

Coupon = (0.088 * 1000) / 2 = 44

Number of periods = 10 * 2 = 20

Yield to maturity = 8.29%

Keys to use in a financial calculator:

2nd I/Y 2

FV 1000

PV -1034.15

PMT 44

N 20

CPT I/Y

b)

Coupon = (0.088 * 1000) / 2 = 44

Number of periods = 10 * 2 = 20

Bond price = 974.21

Keys to use in a financial calculator:

2nd I/Y 2

FV 1000

I/Y 9.2

PMT 44

N 20

CPT PV