Question

In: Finance

You purchase an ABC 10%, 30 Year bond with a $100 face value for 109.72 What...

You purchase an ABC 10%, 30 Year bond with a $100 face value for 109.72

  1. What is the yield to maturity of the bond?
  2. What is the current yield on the bond?
  3. What is the duration of the bond?
  4. If you bought the bond today and sold it after 1 year at a ytm of 10% what is your cash flow yield ?
  5. What is your realized compound yield if you held the bond for 11 years if the reinvestment rate (R) was 11%?

Solutions

Expert Solution

Solution:-

Price = $109.72

Coupun Rate = 10%

Time = 30 Years

Face Value = $100

To Calculate Yield to maturity (YTM) of Bond-

Interest Amount = $100 * 10%

Interest Amount = $10

YTM =

YTM =

YTM =

YTM = 9.23%

Yield to Maturity of the Bond is 9.23%.

To Calculate Current Yield of the Bond-

Current Yield =

Current Yield =

Current Yield = 9.11%

To Calculate Duration of Bond-

Duration of Bond
Year Cash Flow Discounting Factor @ 9.23% Present Value Weight PV * Weight
1 10 0.915 9.155 1 9.155
2 10 0.838 8.381 2 16.763
3 10 0.767 7.673 3 23.019
4 10 0.702 7.025 4 28.099
5 10 0.643 6.431 5 32.156
6 10 0.589 5.888 6 35.326
7 10 0.539 5.390 7 37.732
8 10 0.493 4.935 8 39.478
9 10 0.452 4.518 9 40.660
10 10 0.414 4.136 10 41.360
11 10 0.379 3.787 11 41.652
12 10 0.347 3.467 12 41.599
13 10 0.317 3.174 13 41.257
14 10 0.291 2.905 14 40.676
15 10 0.266 2.660 15 39.899
16 10 0.244 2.435 16 38.963
17 10 0.223 2.229 17 37.900
18 10 0.204 2.041 18 36.738
19 10 0.187 1.869 19 35.502
20 10 0.171 1.711 20 34.213
21 10 0.157 1.566 21 32.888
22 10 0.143 1.434 22 31.543
23 10 0.131 1.313 23 30.190
24 10 0.120 1.202 24 28.841
25 10 0.110 1.100 25 27.504
26 10 0.101 1.007 26 26.187
27 10 0.092 0.922 27 24.896
28 10 0.084 0.844 28 23.637
29 10 0.077 0.773 29 22.412
30 110 0.071 7.783 30 233.483
Present Value 107.752 1173.727

DOB =

Duration Of Bond =

Duration Of Bond = 10.89 Years

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jeff jeffy answered 1 year ago
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