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please answr both parts thankyou. A bond has a $1,000 par value, 20 years to maturity,...

please answr both parts thankyou.
A bond has a $1,000 par value, 20 years to maturity, and a 5% annual coupon and sells for $860.
What is its yield to maturity (YTM)? Round your answer to two decimal places.
___%
Assume that the yield to maturity remains constant for the next three years. What will the price be 3 years from today? Do not round intermediate calculations. Round your answer to the nearest cent.
$ ___


Solutions

Expert Solution

YTM is calculated using RATE function in Excel :

nper = 20 (years remaining until maturity with 1 annual coupon payment each year)

pmt = 1000 * 5% (annual coupon payment = face value * coupon rate)

pv = -860 (Current price of bond. This is entered with a negative sign because it is a cash outflow to buy the bond today).

fv = 1000 (face value of bond receivable at maturity).

RATE is calculated to be 6.24%. This is the YTM.

Price 3 years from today

Price of a bond is the present value of its cash flows. The cash flows are the coupon payments and the face value receivable on maturity

Price of bond at issue is calculated using PV function in Excel :

rate = 6.24% (YTM of bonds)

nper = 17 (Years remaining until maturity with 1 coupon payment each year)

pmt = 1000 * 5% (annual coupon payment = face value * coupon rate)

fv = 1000 (face value receivable on maturity)

PV is calculated to be $871.83.

jeff jeffy answered 2 weeks ago
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