Question

In: Finance

A zero-coupon bond with $1000 face value has 10-year to maturity. If this bond is currently...

A zero-coupon bond with $1000 face value has 10-year to maturity. If this bond is currently trading at $463.20. What is this bond’s YTM (i.e., required rate of return)?

What is the coupon rate for a bond with three years until maturity, a price of $953.46, and a yield to maturity of 6%? Assume the bond’s face value is $1,000.

Kodak has a bond with 10 year until maturity, a coupon rate of 10%, and selling for $1,200. This bond pays coupon payment annually. What is the yield to maturity of this bond?

Solutions

Expert Solution

We need to use financial calculator for YTM and coupon rate with below key strokes:

YTM of zero-coupon bond

N= no. of years = 10; PMT= annual interest = $0; PV= present value = -$463.20; FV= future value =$1,000 > CPT=compute > I/Y= YTM = 7.99%

So, Yield to maturity of the zero-coupon bond is 7.99 or 8%.

Note: PV needs to be entered as negative value otherwise financial calculator will show error.

coupon rate for a bond

N= no. of years = 3; I/Y= YTM = 6%; PV= present value = -$956.46; FV= future value =$1,000 > CPT=compute > PMT = coupon interest = $43.7

Coupon rate = coupon interest/face value = $43.7/$1,000 = 4.37%

So, Coupon rate is 4.37%.

Yield to maturity of the bond

coupon payment = face value*coupon rate = $1,000*10% = $100

N= no. of years = 10; PMT= coupon payment = $100; PV= present value = -$1200; FV= future value =$1,000 > CPT=compute > I/Y= YTM = 7.13%

So, Yield to maturity of the bond is 7.13%.


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