Question

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13 A 20-year maturity bond with face value of $1,000 makes annual coupon payments and has a coupon rate of 8.80%. (Do not round intermediate calculations. Enter your answers as a percent rounded to 3 decimal places.) a. What is the bond's yield to maturity if the bond is selling for $980? 8 00:36:28 Yield to maturity % b. What is the bond's yield to maturity if the bond is selling for $1,000? Yield to maturity % c. What is the bond's yield to maturity if the bond is selling for $1,180? 1% Yield to maturity

Answer 1

a. The yield to maturity is computed as shown below:

Plug the below variables in the financial calculator as follows:

PV = - 980

FV = 1,000

PMT = 88 (8.8% x 1,000)

N = 20

Finally press CPT and then I/Y. It will give I/Y equal to 9.019% Approximately

b. Since the price of the bond is equal to the par value of the value which is $ 1,000, it implies that the coupon rate will be equal to the yield to maturity. So, the yield to maturity in this case will be 8.8%

c. The yield to maturity is computed as shown below:

Plug the below variables in the financial calculator as follows:

PV = - 1,180

FV = 1,000

PMT = 88 (8.8% x 1,000)

N = 20

Finally press CPT and then I/Y. It will give I/Y equal to 7.089% Approximately

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