Question

Yield to maturity. What is the yield of each of the following bonds if interest (coupon) is paid annually? Yield to Maturity Par Value $5,000.00 $1,000.00 $1,000.00 $1,000.00 Years to Maturity 10 25 Price $6,500.00 $1,760.00 $1,000.00 $650.00 Coupon Rate 9% 12% 10% 5% 20

Answer 1

1.

Number of Years to Maturity = 10

PMT = 9%*5000 = $450

Par Value= $5000

Market Price = $6500

Yield = (PMT + (Par Value - Market Price)/Number of Years to Maturity) / ((Par Value + Market Price)/2)

= (450 + (5000 - 6500)/10) / ((5000 + 6500)/2) = 0.0522 or 5.33%

2.

Number of Years to Maturity = 25

PMT = 12%*1000 = $120

Par Value= $1000

Market Price = $1760

Yield = (PMT + (Par Value - Market Price)/Number of Years to Maturity) / ((Par Value + Market Price)/2)

= (120 + (1000 - 1760)/25) / ((1000 + 1760)/2) = 0.0649 or 6.49%

3.

Number of Years to Maturity = 5

PMT = 10%*1000 = $100

Par Value= $1000

Market Price = $1000

Yield = (PMT + (Par Value - Market Price)/Number of Years to Maturity) / ((Par Value + Market Price)/2)

= (100 + (1000 - 1000)/5) / ((1000 + 1000)/2) = 0.10 or 10%

4.

Number of Years to Maturity = 20

PMT = 6%*1000 = $60

Par Value= $1000

Market Price = $650

Yield = (PMT + (Par Value - Market Price)/Number of Years to Maturity) / ((Par Value + Market Price)/2)

= (60 + (1000 - 650)/20) / ((1000 + 650)/2) = 0.0939 or 9.39%