a. A coupon payment bond has a face value of $100 and sells at $94. The...

a. A coupon payment bond has a face value of $100 and sells at $94. The bond has a

coupon rate of 7.5% and pays semi-annual coupons. The bond has a maturity of 30 years.

What is the YTM?

b. What is the YTM if the same bond in a sells at $101?

c. What is the general relationship between bond price and market interest rate? (i.e. what

does discount bond imply about market interest rate and coupon rate? What does

premium bond imply about market interest rate and coupon rate?)

Expert Solution

a)

Hence, YTM is 8.60% (4.30%*2)

b)

Hence, YTM is 7.32% (3.66%*2)

c)

If interest rates increase, bond price will decrease and vice-versa.

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jeff jeffy answered 13 hours ago

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