Question

If a bond with face value of $1,000 and a coupon rate of 8% is selling at a price of $1,070, which of the following regarding the bond's yield to maturity is correct?

Yield to maturity is less than 8%.

Yield to maturity is more than 8%.

Yield to maturity equals 8%.

None of the above is correct.

Answer #1

**Bond Price:**

It refers to the sum of the present values of all likely coupon
payments plus the present value of the par value at maturity. There
is inverse relation between Bond price and YTM ( Discount rate )
and Direct relation between Cash flow ( Coupon/ maturity Value )
and bond Price.

Price of Bond = PV of CFs from it.

If YTM > Coupon, Bond will trade at discount

If YTM = Coupon, Bond will trade at par

If YTM < Coupon, Bond will trade at Premium

In the given case, Bond is trading at premium. Hence YTM will be less than coupon Rate ( 8% ).

OPtion A is correct.

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Consider a bond with a
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Complete the following table. (Enter your responses rounded
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Years to Maturity
Yield to Maturity
Current Price
2
4%
?
2
6%
?
3
6%
?
5
4%
?
5
8%
?
When the yield to maturity is
▼
less than
greater than
equal to
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appropriate values:
RATE
NPER
PMT
FV
TYPE

A bond has a face value of $1,000, a coupon rate of 8%, and a
maturity of 10 years. The bond makes semi-annual coupon
payments. The bond’s yield to maturity is
9%. In Excel, the =PV formula can be used to find the
price of the bond. Fill in the table with the
appropriate values:
RATE
NPER
PMT
FV
TYPE
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RATE
NPER
PMT
FV
TYPE

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