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(You'll need a financial calculator] Suppose a 10-Year bond with $1,000 par value has a 5% coupon rate and semiannual coupons is trading for a price of $1,077.77, what is the bond's yield to maturity (expressed as an APR with semiannual compounding)? A. 2.50% B. 6.05% C. 4.55% D. 5.00% E. 4.05% [You'll need a financial calculator] Consider a $20,000 car loan with 48 equal monthly payments, compounded 6.00% APR with monthly compounding, what is the monthly payment? A. $525.66 B. $469.70 C. $439.95 D. $425.55 E. $515.67

Answer 1

Answer to Question 1:

Face Value = $1,000
Current Price = $1,077.77

Annual Coupon Rate = 5%
Semiannual Coupon Rate = 2.50%
Semiannual Coupon = 2.50%*$1,000 = $25

Time to Maturity = 10 years
Semiannual Period to Maturity = 20

Let semiannual YTM be i%

$1,077.77 = $25 * PVIFA(i%, 20) + $1,000 * PVIF(i%, 20)

Using financial calculator:
N = 20
PV = -1077.77
PMT = 25
FV = 1000

I = 2.023%

Semiannual YTM = 2.023%
Annual YTM = 2 * 2.023%
Annual YTM = 4.05%

Answer to Question 2:

Amount borrowed = $20,000
Annual interest rate = 6.00%
Monthly interest rate = 0.50%
Number of payments = 48

$20,000 = Monthly payment * PVIFA(0.50%, 48)

Using financial calculator:

N = 48
I = 0.50%
PV = -20000
FV = 0

PMT = 469.70

So, monthly payment is $469.70