Question

1- A bond is currently selling in the market for $1,098.62. It has a coupon of 9% and a 20-year maturity. Using annual compounding, calculate the yield to maturity on this bond.

2- A zero-coupon bond that matures in 15 years is currently selling for $209 per $1,000 par

value. What is the promised yield on this bond?

Answer 1

1

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =20

1098.62 =∑ [(9*1000/100)/(1 + YTM/100)^k]     +   1000/(1 + YTM/100)^20

k=1

YTM% = 8

2

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =15

209 =∑ [(0*1000/100)/(1 + YTM/100)^k]     +   1000/(1 + YTM/100)^15

k=1

YTM% = 11