Question

PROBLEM 2 A/ Suppose a ten-year, $1,000 bond with an 8.8% coupon rate and semiannual coupons is trading for 1,034.37. a. What is the bond's yield to maturity (expressed as an APR with semiannual compounding)? (Round to two decimal places.) b. If the bond's yield to maturity changes to 9.2% APR, what will be the bond's price? The new price for the bond is (Round to the nearest cent.) B/ Suppose a five-year, $ 1000 bond with annual coupons has a price of $ 899.19 and a yield to maturity of 6.1 %. What is the bond's coupon rate? (Round to three decimal places.)

Answer 1

A)

a)

Function Arguments ? X RATE Nper 20 10*2 Pmt 88/2 44 Pv 1034.37 -1034.37 1000 Fv 1000 Туре 0 0.041438673 Returns the interest rate per period of a loan or an investment. For example, use 6% /4 for quarterly payments at 6% APR. Type is a logical value: payment at the beginning of the period 1; payment at the end of the 0 or omitted. period Formula result 4.14% Help on this function Cancel ок OK

Hence, Yield to maturity is 8.28% (4.14%*2)

b)

Function Arguments ? X PV 9.2%/2 Rate 0.046 Nper 10 2 20 Pmt 88/2 44 Fv 1000 1000 Туре d -974.2080996 Returns the present value of an investment: the total amount that a series of future payments is worth now. Type is a logical value: payment at the beginning of the period 1; payment at the end of the period =0 or omitted Formula result = -$974.21 Help on this function Cancel ок

Hence, New price of the bond is $974.21

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