Question

Note: If not otherwise stated, assume that:

• Yield-to-maturity (YTM) is an APR, semi-annually compounded

• Bonds have a face value of $1,000

• Coupon bonds make semi-annual coupon payments; however, coupon rates (rc) are annual rates, i.e., bonds make a semi-annual coupon payment of rc/2

Four years ago, Candy Land Corp. issued a bond with a 14% coupon rate, semi-annual coupon payments, $1,000 face value, and 14-years until maturity.

a) You bought this bond three years ago (right after the bond made its coupon payment) when the yield-to-maturity was 10%. How much did you pay for the bond?

Select one:  

$1,006.3

$725.2

$1,000.0

$1,263.3

$1,249.2

$1,187.9

$1,287.5

$2,293.8

b) The current yield-to-maturity is 15%. If you sell the bond today (next coupon payment is in 6 months from today), after having owned it for three years, what would be your capital gain/loss yield? Remember, the capital gain/loss yield is the return resulting from price changes of your investment.

Select one:

-8.8%

-3.0%

-31.2%

-26.3%

-27.5%

10.0%

35.7%

15.0%

c) Suppose two years from now (right after the bond made its coupon payment) the bond has a value of $1,154. What would be the yield-to-maturity of the bond (APR, semi-annually compounded)? Use Excel or a financial calculator to solve this question

Select one:

5.5%

-0.7%

11.1%

14.0%

10.8%

5.4%

11.8%

11.4%

NOTE: Please show all the work, without using excel, unless necessary. (step by step with equations) Thanks!

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

I HAVE SOLVED FIRST 2 USING FORMULA AND LAST ONE USING EXCEL.

PVIFA AND PVIF CALCULATED USING EXCEL. YOU WANT ANY HELP, FILL FREE TO ASK.

THANK YOU.