Question

If a ten-year bond pays a coupon of $50 annually and will repay principal of $1,000 upon maturity and: a. It trades at 'par', i. What is the price of the bond? ii. What is the coupon yield? iii. What is the yield-to-maturity (YTM)? b. It trades at a price of $900 i. What is the coupon yield? ii. What is the yield-to-maturity (YTM) [Use your 5 keys to solve]? C. It trades at a price of $1081.11 i. What is the coupon yield? ii. What is the yield-to-maturity (YTM)? [Use your 5 keys to solve)?

Answer 1

Given, 10 year bond

annual coupon = $50

FV = $1000

a). trading at par means, Price = FV = $1000

i). the price of the bond = $1000

ii). coupon yield = coupon/price = 50/1000 = 5%

iii). YTM when bond is trading at par is its coupon rate, So, YTM = 5%

b). Price = $900

i). Coupon yield = 50/900 = 5.56%

ii). YTM using financial calculator,

PV = -900

PMT = 50

N = 10

FV = 1000

compute for I/Y, we get I/Y = 6.38%,

So, YTM = 6.38%

c). Price = $1081.11

i). Coupon yield = 50/1081.11 = 4.62%

ii). YTM using financial calculator,

PV = -1081.11

PMT = 50

N = 10

FV = 1000

compute for I/Y, we get I/Y = 4.00%,

So, YTM = 4.00%