You purchased a $1,000 bond with a 4.6% semi-annual coupon and 15 years to maturity six...

You purchased a $1,000 bond with a 4.6% semi-annual coupon and 15 years to maturity six years ago at a price of $865. If the yield has remained constant, what should be the price of the bond today? A. $959.46 B. $601.31 C. $905.32 D. $900.24

Three years ago you purchased a $1,000 par 12-year bond with a 3.5% semi-annual coupon at a price of $875. If the current price is $965, what is the yield to maturity of the bond today?

A. 4.89% B. 3.97% C. 3.17% D. 5.26%

Solutions

Expert Solution

QUESTION 1 : The correct option is C. 905.32

Using Excel

Formula sheet

Usinf financial calculator :

Compute YTM first using the the price given.

PV = -865

PMT = 23 (Because bond pays semiannual payments i.e. coupon payments = 4.6%/2*1000 = 23)

FV = 1000 ( this will be received as face value after 15 years)

N = 30 (number of payments, 15*2 = 30)

Press CPT and then press I/Y. You will get value eqaul to 2.9877%

This value is semi annual rate. We represent YTM as annual rate. Therefore multiply this by 2 and you will get YTM = 5.97%

Let the values be as it is and insert 2.9877 as I/Y. ( because YTM is also divided by two for semi annual bonds)

Enter the value of N = 18 for 9 years. Press CPT and PV. You will get answer eqaul to $905.32

QUESTION 2 : The correcti option is 3.97%

Formula sheet

If you have any doubt, you can ask me in the comment section.

jeff jeffy answered 1 year ago

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