Martha is considering a $1,000 par value bond for all the following scenarios. C. How long...
Martha is considering a $1,000 par value bond for all the following scenarios.
C. How long would it take a bond to mature that pays a 5% annual
coupon rate, has a yield to maturity of 8%, and is priced at
$925?
D. What is the coupon rate for an annual coupon bond that has a
yield to maturity of 8%, is priced at $845, with 13 years to
maturity?
E. What is the annual coupon payment on a semiannual
Homework Answers
Par value, FV = $1,000
C. How long would it take a bond to mature that pays a 5% annual coupon rate, has a yield to maturity of 8%, and is priced at $925?
FV = 1,000
PV = -925
PMT = 1,000 * 0.05 = 50
I/Y = 8
CPT N
N = 2.899435195
It would take 2.899435195 years for the bond to mature.
D. What is the coupon rate for an annual coupon bond that has a yield to maturity of 8%, is priced at $845, with 13 years to maturity?
N = 13
I/Y = 8
PV = -845
FV = 1000
CPT PMT
PMT = $60.38912019
Coupon rate = PMT/FV
Coupon rate = 60.38912019/1,000
Coupon rate = 0.06038912019
Coupon rate = 6.038912019%
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