Question

In: Finance

What is the yield to maturity on a 10-year, 9% annual coupon, $1,000 par value bond...

What is the yield to maturity on a 10-year, 9% annual coupon, $1,000 par value bond that sells for $887.00? That sells for $1,134.20? What does the fact that a bond sells at a discount or at a premium tell you about the relationship between and the bond’s coupon rate?
What are the total return, the current yield, and the capital gains yield for the discount bond? (Assume the bond is held to maturity and the company does not default on the bond.)

Expert Solution

Discount bond :

The YTM is calculated using the RATE function in Excel with these inputs :

nper = 10 (number of coupon payments = number of years to maturity)

pmt = 1000 * 9% (annual coupon payment. this is entered as a positive number as it is a cash inflow to the bondholder)

pv = -887 (the current price of the bond - this is entered as a positive number as it is a cash inflow to the buyer of the bond)

fv = 1000 (the face value of the bond receivable by the bondholder on maturity. As it is a cash inflow to the bondholder, it is entered as a positive figure)

RATE is calculated to be 10.91%. This is the YTM of the bond

Premium bond :

The YTM is calculated using the RATE function in Excel with these inputs :

nper = 10 (number of coupon payments = number of years to maturity)

pmt = 1000 * 9% (annual coupon payment. this is entered as a positive number as it is a cash inflow to the bondholder)

pv = -1134.20 (the current price of the bond - this is entered as a positive number as it is a cash inflow to the buyer of the bond)

fv = 1000 (the face value of the bond receivable by the bondholder on maturity. As it is a cash inflow to the bondholder, it is entered as a positive figure)

RATE is calculated to be 7.08%. This is the YTM of the bond

If a bond trades at a discount, the YTM > coupon rate , and if a bond trades at a premium, YTM < coupon rate

Total return = interest + capital gain

interest = 1000 * 9% * 10 = $900

capital gain = 1000 - 887 = $113

Total return = 900 + 113 = $1013

current yield = coupon payment / bond price = 90 / 887 = 0.1015, or 10.15%

capital gains yield = capital gains / current price = 113 / 887 = 0.1274 , or 12.74%

jeff jeffy answered 1 year ago

A zero-coupon bond has a yield to maturity of 9% and a par value of $1,000....

A zero-coupon bond has a yield to maturity of 9% and a par value of $1,000. By convention, zero bonds are assumed to pay $0 semi-annually. If the bond matures in eight years, the bond should sell for a price of _______ today.v.

1. What is the yield to maturity for a $1,000 par, 25 year, 9% coupon bond...

1. What is the yield to maturity for a $1,000 par, 25 year, 9% coupon bond with annual payments, callable in 2 years for $1,100 that sells for $900? A. 20.1% B. 8.6% C. 18.6% D. 10.1% 2. What is the yield to call for a $1,000 par, 25 year, 9% coupon bond with annual payments, callable in 2 years for $1,100 that sells for $900? A. 8.6% B. 20.1% C. 18.6% D. 10.1%

A 10-year maturity bond with par value of $1,000 makes annual coupon payments at a coupon...

A 10-year maturity bond with par value of $1,000 makes annual coupon payments at a coupon rate of 8%. Find the bond equivalent and effective annual yield to maturity of the bond for the following bond prices. (Round your answers to 2 decimal places.) Bond prices: 950, 1000, 1050 What are the Bond Equivalent Annual Yield to Maturity and Effective Annual Yield to Maturity

1. What is the yield to maturity for a $1,000 par, 10 year, 8% coupon bond...

1. What is the yield to maturity for a $1,000 par, 10 year, 8% coupon bond with semiannual payments, callable in 3 years for $1,050 that sells for $1,071.06? A. 13.2% B. 5.4% C. 7.0% D. 9.0% 2. What is the yield to call for a $1,000 par, 10 year, 8% coupon bond with semiannual payments, callable in 3 years for $1,050 that sells for $1,071.06? A. 14.2% B. 6.9% C. 9.0% D. 5.4% 3. What is the yield to...

Find the yield to maturity for a 15-year, 8% annual coupon rate, $1,000 par value bond...

Find the yield to maturity for a 15-year, 8% annual coupon rate, $1,000 par value bond if the bond sells for $1,218 currently? We assume that interest is paid on this bond annually. 2.90% 5.79% 6.64% 6.86% calculate the bond’s current yield. 6.20% 6.57% 6.80% 7.18% calculate the bond’s capital gain yield. -0.78% 0.78% 6.22% 6.57%

What is the yield to maturity on the following: 10 year bond, 7.5% annual coupon, par...

What is the yield to maturity on the following: 10 year bond, 7.5% annual coupon, par value of $1,000, selling for $813.12 a. 9.88% b. 10.25% c. 10.51% d. 10.62% e. 11.07%

A bond has a $1,000 par value, 12 years to maturity, and a 9% annual coupon...

A bond has a $1,000 par value, 12 years to maturity, and a 9% annual coupon and sells for $1,110. What is its yield to maturity (YTM)? Round your answer to two decimal places. % Assume that the yield to maturity remains constant for the next 2 years. What will the price be 2 years from today? Do not round intermediate calculations. Round your answer to the nearest cent. $

What is the yield to maturity on a $1,000 par value bond 9 ⅛ percent Intercontinental...

What is the yield to maturity on a $1,000 par value bond 9 ⅛ percent Intercontinental Hotels Group bond if the investor buys the bonds at the following market prices? Assume the coupon is paid annually and the bond matures in 6 years. a.$1,125.00 b.$1,000 c.$962.00

Find the promised yield to maturity for a 9% coupon, $1,000 par 20 year bond selling...

Find the promised yield to maturity for a 9% coupon, $1,000 par 20 year bond selling at $920.56. The bond makes semiannual coupon payments. a)9.44% b)9.92% c)9.99% d)10.14% Yield to Call Find the yield to call for a 8% coupon, $1,000 par 15 year bond selling at $1045.50 if the bond is callable in 10 years at a call price of $1,080. The bond makes semiannual coupon payments. a) 6.88% b) 7.13% c)6.73% d)7.87%

bond has a $1,000 par value, 10 years to maturity, and a 8% annual coupon and...

bond has a $1,000 par value, 10 years to maturity, and a 8% annual coupon and sells for $980. What is its yield to maturity (YTM)? Round your answer to two decimal places. b)Assume that the yield to maturity remains constant for the next 3 years. What will the price be 3 years from today? Do not round intermediate calculations. Round your answer to the nearest cent 2)Nesmith Corporation's outstanding bonds have a $1,000 par value, a 8% semiannual coupon,...