a). To find the YTM, we need to put the following values in the financial calculator:
N = 10*2 = 20;
PV = -1095.17;
PMT = (8%/2)*1000 = 40;
FV = 1000;
Press CPT, then I/Y, which gives us 3.34
Periodic Rate = 3.34%
So, YTM = Periodic Rate * No. of compounding periods in a year = 3.34% * 2 = 6.68%
b). To find the YTC, we need to put the following values in the financial calculator:
N = 5*2 = 10;
PV = -1095.17;
PMT = (8%/2)*1000 = 40;
FV = 1050;
Press CPT, then I/Y, which gives us 3.30
Periodic Rate = 3.30%
So, YTC = Periodic Rate * No. of compounding periods in a year = 3.30% * 2 = 6.60%
c). Statement "IV" is correct.
Since the YTC is less than the YTM, investors would expect the bonds to be called and to earn the YTC.
C
7-4: Bond Yields 7-6: Bonds with Semiannual Coupons Yield to maturity A firm's bonds have a...
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