Question

In: Finance

A bond has a $1,900 par value, 10 years to maturity, and 7% annual coupon and...

A bond has a $1,900 par value, 10 years to maturity, and 7% annual coupon and sells for $1,800.

  1. What is its YTM?

Assume YTM remains constant for the next 3 years. What will be its price 3 years from now?

a.

7.78 & $5798.23 respectively

b.

4.34 & $1826.15 respectively

c.

7.78 & $1949.17 respectively

d.

7.78 & $1822.36 respectively

Solutions

Expert Solution

YTM is 7.78%

Calculator
Inputs:
PV                (1,800)
PMT                     133
FV                  1,900
N                       10
Output:
I/Y = IRR= 7.78%
Particulars Cash flow Discount factor Discounted cash flow
present value Interest payments-Annuity (7.78%,7 periods) $                       133.00 5.24580 $                697.69
Present value of bond face amount -Present value (7.78%,7 periods) $                    1,900.00 0.59190 $             1,124.61
Bond price $             1,822.30

Answer is

7.78 & $1822.36 respectively

please rate.


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