Question

Suppose a ten-year, $1,000 bond with an 8.3% coupon rate and semiannual coupons is trading for $1,034.64. a. What is the bond's yield to maturity (expressed as an APR with semiannual compounding)? b. If the bond's yield to maturity changes to 9.7% APR, what will be the bond's price? a. What is the bond's yield to maturity (expressed as an APR with semiannual compounding)? The bond's yield to maturity is 7.8 %. (Round to two decimal places.) b. If the bond's yield to maturity changes to 9.7% APR, what will be the bond's price? The new price for the bond is $941.97. (Round to the nearest cent.)

Answer 1

a)

С $ 6 7 8 9 10 11 A B A Face value (FV) Coupon rate Number of compounding periods per year AxB:C Interest per period (PMT) Bond price (PV) D Number of years to maturity Number of compounding periods till DxC maturity (NPER) Bond yield to maturity 1,000 8.3% 2. 41.5 1,034.64 10 $ $ 20 12 13 14 RATE(NPER,PMT,-PV,FV)]*2 15 Bond yield to maturity 7.79% =RATE(20,41.5,-1034.64,1000)x2 16

b)

с $ 1,000 8.3% 2 41.5 $ 10 A B 7 A Par value (FV) 8 B Coupon rate 9 Number of compoundings per year 10 D = AxB/C Interest per period (PMT) 11 E Number of years to maturity Number of compounding periods till 12 F = CxE maturity (NPER) 13 Greturn Market rate of return/Required rate of 14 G/Creturn per period (RATE) 15 Bond price 16 20 wn 9.7% 4.85% PV(RATE,NPER,PMT,FV)*-1 Bond price 17 is 911.64 18 =PV(4.85%,20,41.5,1000)*-1

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