Question

2. A coupon bond pays annual int coupon rate of 10%, and has a yield to maturity of annual interest, has a par value of $1.000, matures in 4 years, has a ed to maturity of 12%. The current yield on this bond is a. 10.52% b. 10.45% c. 10.95% d. 10.65% e. none of the above 3. A coupon bond that pays interest annually is selling op and has a coupon rate of 9%. The yield to maturity on this bond is: st annually is selling at par value of $1,000, matures in 5 years, a. 8.0% b.8.3% c. 10.0% d. 9.0% e. none of the above

Answer 1

2)	Par/Face value	1000
	Annual Coupon rate	0.1
	Annual coupon	100
	Present Value = Future value/ ((1+r)^t)
	where r is the yield to maturity that is 12% and t is the time period in years.
	price of the bond = sum of present values of future cash flows
	r	0.12
	mt	1	2	3	4
	future cash flow	100	100	100	1100
	present value	89.28571	79.71939	71.17802	699.0699
	sum of present values	939.25
	Price of the bond	939.25
	The current yield = Annual cash inflow or coupon/Price of the bond
	Current yield = 100/939.25
	Current yield = 10.6468%
	d) 10.65%.
3)	Par/Face value	1000
	Annual Coupon rate	0.09
	Annual coupon	90
	Present Value = Future value/ ((1+r)^t)
	where r is the yield to maturity and t is the time period in years.
	price of the bond = sum of present values of future cash flows
	Use excel to find r
	r	0.09
	mt	1	2	3	4	5
	future cash flow	90	90	90	90	1090
	present value	82.56881	75.7512	69.49651	63.75827	708.4252
	sum of present values	1000.00
	Since the bond is selling at the par value, the yield to maturity is equal to the coupon rate.
	The yield to maturity is 9%.
	d) 9%.