YIELD TO MATURITY AND FUTURE PRICE A bond has a $1,000 par value, 10 years to...

YIELD TO MATURITY AND FUTURE PRICE A bond has a $1,000 par value, 10 years to maturity, and a 7% annual coupon and sells for $985.

A. What is its yield to maturity (YTM)?

B. Assume that the yield to maturity remains constant for the next three years. What will
the price be 3 years from today?

Solutions

Expert Solution

YTM is the rate at which PV of Cash Inflows are equal to bond Price.

* Nod Price = Bond Price.... Type error

YTM = rate at which least +ve NPV + [ NPV at that rate / change in NPV due to 1 % change in Disc Rate ] * 1%

= 7% + [ 15 / 67.10 ] * 1%

= 7% + 0.22%

= 7.22%

Bond Price after 3 Years:

Then there is balance of 7 years to maturity.

Value of Bond = PV of Cash flows at YTM.

Value of Bond after 3 years is 988.05

jeff jeffy answered 4 weeks ago

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