Question

The following table shows some data for three zero-coupon bonds. The face value of each bond is $1,000. Bond A Maturity (Years) Price $ 390 Yield to Maturity 390 8% 19 10 a. What is the yield to maturity of bond A? (Do not round intermediate calculations. Enter your answer as a percent rounded to 3 decimal places. Assume annual compounding.) Yield to maturity 3.188:% b. What is the maturity of B? (Do not round intermediate calculations. Round your answer to 2 decimal places. Assume annual compounding.) Maturity years

Answer 1

A

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =30

390 =∑ [(0*1000/100)/(1 + YTM/100)^k]     +   1000/(1 + YTM/100)^30

k=1

YTM% = 3.188

B

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =N

390 =∑ [(0*1000/100)/(1 + 8/100)^k]     +   1000/(1 + 8/100)^N

k=1

N(in years) = 12.24

C

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =19

Bond Price =∑ [(0*1000/100)/(1 + 10/100)^k]     +   1000/(1 + 10/100)^19

k=1

Bond Price = 163.51