Question

A 30-year maturity bond with face value of $1,000 makes semiannual coupon payments and has a coupon rate of 8.0%. (Do not round intermediate calculations. Enter your answers as a percent rounded to 3 decimal places.)

a.	What is the yield to maturity if the bond is selling for $930?

What is the yield to maturity if the bond is selling for $1,135?

Answer 1

(a)-The Yield to Maturity of the Bond if the bond is selling for $930

The Yield to maturity of (YTM) of the Bond is calculated using financial calculator as follows (Normally, the YTM is calculated either using EXCEL Functions or by using Financial Calculator)

Variables	Financial Calculator Keys	Figure
Face Value [$1,000]	FV	1,000
Coupon Amount [$1,000 x 8.00% x ½]	PMT	40
Yield to Maturity [YTM]	1/Y	?
Time to Maturity [15 Years x 2]	N	60
Bond Price [-$930]	PV	-930

We need to set the above figures into the financial calculator to find out the Yield to Maturity of the Bond. After entering the above keys in the financial calculator, we get the yield to maturity (YTM) on the bond = 8.66%

“The Yield to maturity of (YTM) of the Bond will be 8.66%”

(b)-The Yield to Maturity of the Bond if the bond is selling for $1,135

The Yield to maturity of (YTM) of the Bond is calculated using financial calculator as follows (Normally, the YTM is calculated either using EXCEL Functions or by using Financial Calculator)

Variables	Financial Calculator Keys	Figure
Face Value [$1,000]	FV	1,000
Coupon Amount [$1,000 x 8.00% x ½]	PMT	40
Yield to Maturity [YTM]	1/Y	?
Time to Maturity [15 Years x 2]	N	60
Bond Price [-$1,135]	PV	-1,135

We need to set the above figures into the financial calculator to find out the Yield to Maturity of the Bond. After entering the above keys in the financial calculator, we get the yield to maturity (YTM) on the bond will be 6.93%.

“The Yield to maturity of (YTM) of the Bond will be 6.93%”