Question

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

Answer 1

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

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