Question

3. A 20-year maturity coupon bond with face value of $1,000 makes annual coupon payments and has a coupon rate of 20%. When the bond sells at 1500, the YTM is____; When the bond sells at 1000, the YTM is _____; When the bond sells at 800, the YTM is _____.

Answer 1

Correct Answer:

1 When bond sells at $ 1500, YTM is 13%.

Working:

A	Face value	$              1,000
B	Issue price	$              1,500
C	Coupon rate	20%
D=A*C	Annual interest	$                  200
E =(D/B)*100	YTM rate	13%

2: When bond sells at $ 1000, YTM is 20%.

working:

A	Face value	$              1,000
B	Issue price	$              1,000
C	Coupon rate	20%
D=A*C	Annual interest	$                  200
E =(D/B)*100	YTM Rate	20%

3: When bond sells at $ 800, YTM is 25%.

working:

A	Face value	$              1,000
B	Issue price	$                  800
C	Coupon rate	20%
D=A*C	Annual interest	$                  200
E =(D/B)*100	YTM Rate	25%

End of Answer.

Thanks