In: Finance
Your broker offers to sell you for $901.19 a 30-year, $1,000 face value Treasury bond with a 10% coupon rate. The bond pays interest annually. What is the yield to maturity, or expected rate of return, if you pay the asking price?
9% |
||
10.19% |
||
11.89% |
||
11.15% |
||
13.12%. |
1 points
QUESTION 15
What is the most that you would be willing to pay for the above bond if you require a rate of return of 12%?
$1,200 |
||
$1,100 |
||
$900.09 |
||
$838.90 |
||
$799.99. |
Yield to Maturity of the Bond
Variables |
Financial Calculator Keys |
Figure |
Par Value/Face Value of the Bond [$1,000] |
FV |
1,000 |
Coupon Amount [$1,000 x 10.00%] |
PMT |
100 |
Market Interest Rate or Yield to maturity on the Bond |
1/Y |
? |
Maturity Period/Time to Maturity [30 Years] |
N |
30 |
Bond Price [-$901.19] |
PV |
-901.19 |
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 annual yield to maturity (YTM) on the bond = 11.15%.
“Hence, the Yield to maturity of (YTM) of the Bond will be 11.15%”
Price of the Bond
Variables |
Financial Calculator Keys |
Figures |
Par Value/Face Value of the Bond [$1,000] |
FV |
1,000 |
Coupon Amount [$1,000 x 10.00%] |
PMT |
100 |
Market Interest Rate or Yield to maturity on the Bond [12.00%] |
1/Y |
12 |
Maturity Period/Time to Maturity [30 Years] |
N |
30 |
Bond Price |
PV |
? |
Here, we need to set the above key variables into the financial calculator to find out the Price of the Bond. After entering the above keys in the financial calculator, we get the Price of the Bond (PV) = $838.90.
“Hence, the price that would be willing to pay for the bond will be $838.90”