Question

The bond shown in the following table pays interest annually. (Click on the icon here in order t o Yield to maturity a spreadsheet.) the contents of the date table below into Par value $500 Coupon interest rate Years to maturity Current value $630 139 a. Calculate the yield to maturity (TM) for the bond b. What relationship exists between the coupon Interest rate and yield to maturity and the par value and market value of a bond? Explain a. The yield to maturity (YTM) for the bond % (Round to two decimal places.) b. What relationship exists between the coupon interest rate and yield to maturity and the par value and market value of a bond? Explain (Select the best answer below) O A. The market value of the bond approaches its par value as the time to maturity increases. The yield-to-maturity approaches the coupon interest rate as the time to maturity declines. OB. The market value of the bond approaches its par value as the time to maturity increases. The yield-to-maturity approaches the coupon interest rate as the time to maturity increases OC. The market value of the bond approaches its par value as the time to maturity declines. The yield-to-maturity approaches the coupon interest rate as the time to maturity declines OD. The market value of the bond approaches its par value as the time to maturity declines. The yield-to-maturity approaches the coupon interest rate as the time to maturity increases Click to select your answers

Answer 1

Answer a.

Face Value = $500
Current Price = $630

Annual Coupon Rate = 13%
Annual Coupon = 13% * $500
Annual Coupon = $65

Time to Maturity = 11 years

Let Annual YTM be i%

$630 = $65 * PVIFA(i%, 11) + $500 * PVIF(i%, 11)

Using financial calculator:
N = 11
PV = -630
PMT = 65
FV = 500

I = 9.15%

Annual YTM = 9.15%

The yield to maturity (YTM) for the bond is 9.15%

Answer b.

The market value of the bond approaches its par value as the time to maturity declines. The yield-to-maturity approaches the coupon interest rate as the time to maturity declines.