Question

Please solve, show work, and give detail explanation

6. A firm offers a 6.4 percent bond with a current market price of $760.50. The yield-to- maturity (YTM) is 8.52 percent. The face value is $1,000. Interest is paid semi-annually. How many years until this bond matures? stereo 7. A bond that pays interest annually yields a rate of return of 7.5 percent. The inflation rate for the same period is 2 percent. What is the real rate of return on this bond?

Answer 1

6)	Years to maturity	=	=nper(rate,pmt,-pv,fv)/2
		=	39	Years
	Where,
	rate	=	8.52%/2	=	0.0426
	pmt	=	1000*6.4%*6/12	=	32
	pv			=	$     760.50
	fv			=	$ 1,000.00
7)
As per fisher equation,
	(1+R)	=	(1+r)*(1+i)		Where,
	(1+0.075)	=	(1+r)*(1+0.02)		R	=	Nominal rate	=	0.075
	1.075	=	(1+r)*1.02		r	=	real rate	=	?
	1.053922	=	1+r		i	=	Inflation rate	=	0.02
	0.053922	=	r
So, real rate of return is			5.39%