Solution to QUESTION-1
Bond’s Approximate Yield to Maturity [YTM]
Here, we’ve Par Value = $1,000
Annual Coupon Amount = $64
Bond Price = $1,062.50
Maturity Years = 11 Years
Therefore, the Bond’s Approximate Yield to Maturity [YTM] = Coupon Amount + [ (Face Value – Bond Price) / Maturity Years] / [(Face Value + Bond Price)/2]
= $64 + [($1,000 - $1,062.50) / 11] / [($1,000 + $1,062.50) / 2]
= $64 + [-$62.50 / 11 Years] / [$2,062.50 / 2]
= [$64 - $5.68] / $1,031.25
= $58.32 / $1,031.25
= 0.0566 or
= 5.66%
“Hence, the Bond’s Approximate Yield to Maturity [YTM] will be 5.66%”
Solution to QUESTION-2
Current Price of the Bond
Variables |
Financial Calculator Keys |
Figures |
Par Value/Face Value of the Bond [$1.000] |
FV |
1,000 |
Coupon Amount [$1,000 x 6.00%] |
PMT |
60 |
Market Interest Rate or Yield to maturity on the Bond [7.40%] |
1/Y |
7.40 |
Maturity Period/Time to Maturity [11 Years] |
N |
11 |
Bond Price |
PV |
? |
Here, we need to set the above key variables into the financial calculator to find out the Price of the Bond. After entering the above keys in the financial calculator, we get the Price of the Bond (PV) = $897.08.
“Hence, the Current Price of the Bond will be $897.08”
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