A retired couple wants to invest in bonds which have $10,000 par values and mature in...
A retired couple wants to invest in bonds which have $10,000 par values and mature in 20 years. Coupons are paid semi-annually on a stated annual coupon rate of 6.5%. Their investment advisor has pointed out a bond with a yield to maturity of 7.75%. They have $150,000 to invest.
Three years after initial purchase, Martha wonders what the yield to maturity on the bonds is now. They are selling for $12,000 each.
Homework Answers
| K = Nx2 |
| Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k] + Par value/(1 + YTM/2)^Nx2 |
| k=1 |
| K =17x2 |
| 12000 =∑ [(6.5*10000/200)/(1 + YTM/200)^k] + 10000/(1 + YTM/200)^17x2 |
| k=1 |
| YTM% = 4.77 |
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