Suppose a ten-year, $1,000 bond with an 8.2% coupon rate and semiannual coupons is trading for $1,034.44. 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 9.5% APR, what will be the bond's price?
rate positively ..
Ans a) | we have to use financial calculator to solve this | ||||
put in calculator | |||||
FV | 1000 | ||||
PV | -1034.44 | ||||
PMT | 1000*8.2%/2 | 41 | |||
N | 10*2 | 20 | |||
Compute I | 3.85% | ||||
APR = 3.85%*2 | 7.70% | ||||
Ans b) | if APR = 9.5% | ||||
therefore semiannual rate = 9.5%/2 | 4.75% | ||||
Put in financial calculator - | |||||
FV | 1000 | ||||
PMT | 41 | ||||
N | 20 | ||||
I | 4.75% | ||||
Compute PV | ($917.25) | ||||
Ans = | $917.25 |
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