Question

1. What is the price of $1,000 face-value 3.5% coupon bond with 4 years to maturity with yield of 4%?

2. What is the yield to maturity on a $5,000-face-value discount bond maturing in one year that sells for $4,800? Think about under what conditions will this bond have a negative yield?

Answer 1

1)

Computation Of Bond Value
a	Annual Coupon Amount	$                       35.00
b	Present Value Annuity Factor for (4 Years,4%)	3.629895
c	Present Value Of Annual Interest (a*b)	$                    127.05
d	Redemption Value	$                 1,000.00
e	Present Value Of (4 Years,4%)	0.85480
g	Present Value Of Redemption Amount (d*e)	$                    854.80
f	Bond price(c+g)	$                    981.85

2)

Yield to maturity = ($4800-5000)/5000
=-4%