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Question 8 A 10-year, 8% semiannual coupon with a par value of 1000 selling for 1181.65....

Question 8

A 10-year, 8% semiannual coupon with a par value of 1000 selling for 1181.65. What is the yield to maturity (in %)?

a. 2.8

b. 5.6

c. 3.2

d. 6.4

e. 6

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Answer #1

Question 8

Face Value of Bond = $1000

Semi-annual coupon payment = $1000*8%*1/2

= $40

No of Coupon Payments = No of years to maturity*2 = 10 years*2

= 20

Current price = $1181.65

Calculating the semi-annual Yield to Maturity(YTM) using EXCEL "RATE" Function:-

Semi-annual YTM = 2.8013%

Annual YTM = 2.8013%*2

Annual YTM = 5.60%

Option B

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