An 8% semiannual coupon bond matures in 5 years. The bond has aface value of...

An 8% semiannual coupon bond matures in 5 years. The bond has a face value of $1,000 and a current yield of 8.4236%. What are the bond's price and YTM? (Hint: Refer to Footnote 6 for the definition of the current yield and to Table 7.1) Do not round intermediate calculations. Round your answer for the bond's price to the nearest cent and for YTM to two decimal places.

Solutions

Expert Solution

Current Yield = Annual Coupon amount / Market price of bond
8.4236% = 80 / Market price of bond
Market price of the bond = 80 / 8.4236%
Market price of the bond = 949.713
Annual coupon = 1000 * 8% = 80

To calculate YTM of the bond
Enter the stroke in the financial calculator -
PMT = 40(80/ 2 = 40)
N = 10 (5 * 2 = 10 coupon is made semiannually)
FV = 1000
PV = -949.713
CPT -I/Y = 4.6399
YTM = 4.6399 * 2 = 9.2798
YTM of the bond = 9.28%

jeff jeffy answered 1 year ago

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