Question

18. Compute the yield to maturity of a $2,500 par value bond with a coupon rate of 7.8% (quarterly payments - that is, four times per year) that matures in years. The bond is currently selling for $3,265

19. What is the yield to maturity of a $ par value bond with a coupon rate of 9.5% (semi-annual coupon payments) that matures in 28 years assuming the bond is currently selling for $838.137

par value 1000

Answer 1

Question 18)

Face value F=2500

Coupon rate =7.8%

Quarterly Coupon C=7.8%*2500/4=48.75

Years to maturity =1

Number of Coupon payments N= 1*4=4

Current Bond Price P=3265

Let r be the Quarterly yield to maturity

P=C*(1-(1+r)^-N) + F/(1+r)^N

3265=48.75*(1-(1+r)^-4)/r + 2500/(1+r)^4

r= -4.8039%

Annual Yield =4*r=4*-4.8039%=-19.21%

'

Question 19)

Face value F=1000

Coupon rate =9.5%

Semi annual Coupon C=9.5%*1000/2=47.5

Years to maturity =28

Number of Coupon payments N=28*2=56

Current Bond Price P=838.137

Let r be the Quarterly yield to maturity

P=C*(1-(1+r)^-N) + F/(1+r)^N

838.137=47.5*(1-(1+r)^-56)/r + 1000/(1+r)^56

r=5.72%

AnnualYield =2*r=2*5.72%=11.44%