Question

Suppose a ten-year, $1,000 bond with an 8.6% coupon rate and semiannual coupons is trading for $1,035.33. a. What is the bond's yield to maturity (expressed as an APR with semiannual compounding)? b. If the bond's yield to maturity changes to 9.6% APR, what will be the bond's price? a. What is the bond's yield to maturity (expressed as an APR with semiannual compounding)? The bond's yield to maturity is %. (Round to two decimal places.) b. If the bond's yield to maturity changes to 9.6% APR, what will be the bond's price? The new price for the bond is $ (Round to the nearest cent.)

Answer 1

Answer :

a) By using financial calculator, we can calculate the YTM as follows :

Future value ( FV ) = - $1,000

Present value ( PV ) = $1,035.33

Number of periods ( N ) = 10 * 2 = 20

Payment ( PMT ) = Coupon / frequency = $1,000 * 8.6% / 2 = - $43

Now,

CPT > I/Y = YTM per period = 4.039

Convert Yield in annual and percentage form = YTM * 2 / 100

The bond's yield to maturity = 8.08%

b) By using financial calculator, we can calculate the price of bond as follows :

I/Y = R = Rate / frequency of coupon in a year = 9.6 / 2 = 4.80

Payment ( PMT ) = $1,000 * 8.6% / 2 = - $43

Number of periods ( N ) = 10 * 2 = 20

Future value ( FV ) = - $1,000

Now,

CPT > PV =

The new Price of bond = $936.62