Question

O $12.782 Question 5 1 pt A bond with a par value of $1,000 and a coupon rate of 7.25% has a current yield of 9.50%. What is its yield to maturity? The bond has 8 years to maturity. O 12.29% O 11.49% O 11.59% O 12.02% O 12.38% 1 pts Question 6

Answer 1

Solution:

Calculation of Current Bond Price:

Current Yield = Annual Coupon Payment / Bond Price

9.50% = (1000*7.25%) / Bond Price

9.50% = $72.50 / Bond Price

Bond Price = $72.50 / 9.50%

= $763.16

Below is the calculation of Yield to maturity with Excel:

for Formula fv pv nper Face Value of Bond Current Price of Bond Maturity Years Coupon Rate Annual Coupon Payment (Face Value * Coupon rate) $1,000 $763.16 8 7.25% $72.50 pmt Yield to Maturity Formula Yield to Maturity Formula Used RATE(nper,pmt,-pv,fv) RATE(8,72.5,-763.16,1000) Yield to Maturity 12.02%

Therefore, Correct Option is 12.02%