Question

Interest rate and yield to maturity (a) Explain the difference between interest rate and yield to...

Interest rate and yield to maturity

(a) Explain the difference between interest rate and yield to maturity.

(b) Find the present values the following bonds and fill up the blank cells of present values.

Bond A

Bond B

Bond C

Maturity

3 years

5 years

12 years

Face value

$1,000

$1,000

$1,000

Coupon rate

8%

10%

12%

Yield to maturity

10%

10%

10%

Present value

(c) In the above table, which bond’s present value is equal to its face value? Why?

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