Question

10)Consider a coupon bond that has a par value of ​$800 and a coupon rate of 12​%. The bond is currently selling for ​$864.64 and has 2 years to maturity. What is the​ bond's yield to maturity​ (YTM)? The yield to maturity is _____​%.

​(Round your response to one decimal​ place.)

11.)What is the yield to maturity​ (YTM) on a simple loan for ​$1,500 that requires a repayment of ​$3,000 in five​ years' time? The yield to maturity is ___​%

​(Round your response to one decimal​ place.)

Answer 1

10.

Coupon payment = 0.12*800 = 96

Let i% be the YTM, then

96*(P/A,i%,2) + 800*(P/F,i%,2) = 864.64

using trail and error method

When i = 7%, value of 96*(P/A,i%,2) + 800*(P/F,i%,2) = 96*1.808018 + 800*0.873439 = 872.32

When i = 8%, value of 96*(P/A,i%,2) + 800*(P/F,i%,2) = 96*1.783265 + 800*0.857339 = 857.06

using interpolation

i = 7% + (872.32-864.64)/(872.32-857.06)*(8%-7%)

i = 7% + 0.5032% = 7.5032% ~ 7.5%

11

Let YTM be i%, then

1500 + 1500*i *5 = 3000

i = (3000 - 1500) /(1500* 5) = 0.2 ~ 20%