Once upon a time, the treasurer of “Mighty Corporation” (MCO) decided to issue a bond (hereafter:...
Once upon a time, the treasurer of “Mighty Corporation” (MCO) decided to issue a bond (hereafter: The bond) The bond would have a 20-year life and promised that the holder of the bond would receive:
- 20 annual payments of $80,
- Along with the 20th payment, MCO promised to return the principal of $1,000. In other words, the final payments received at maturity would be ($1000+$80) = $1080.
- Principal price of bond: $1,000
- FV of bond received: $1,080
Question #1:
A) On the day it is issued, what is the Coupon Yield?
B) On the day it is issued, what is the Yield-to-Maturity (YTM)?
Homework Answers
| Coupon yield = Annual coupon payment / Current price |
| Coupon yield = 80/1000 |
| Coupon yield = 8% |
| Yield to maturity = (Coupon + (F - P)/n) / (F + P)/2 |
| F = Future value |
| P = Price |
| n = number of periods |
| Yield to maturity = (80+((1080-1000)/20))/((1080+1000)/2) |
| Yield to maturity = 8.08% |
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Once upon a time, the treasurer of “Mighty Corporation” (MCO)
decided to issue a bond (hereafter:...
Once upon a time, the treasurer of “Mighty Corporation” (MCO) decided to issue a bond (hereafter:...
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