Question

5. Suppose you buy a 6 year 12% bond that has a YTM of 9%. What is the price of the bond?

6. Suppose you buy a 30 year bond that pays a 6% coupon for the first 15 years and a 8% coupon for the last 15 years. The YTM of this bond is 7%. What is the price of the bond?

7.         What is the YTM of a 5 year 8% bond that is currently selling for $1050?

8.         What is the YTM of a 10 year 6% bond that is currently selling for $940?

Answer 1

5. Par Value =1000
Coupon =12%*1000 =120
Rate =9%
Price of Bond =PV of Coupons + PV of Par Value =120*((1-(1+9%)^-6)/9%)+1000/(1+9%)^6 =1134.58

6. Coupon for first 15 years =6%*1000 =60
Coupon for next 15 years =8%*1000 =80
Price of Bond =PV of Coupon 1+PV of Coupon 2+PV of Par Value
=60*((1-(1+7%)^-15)/7%)+80*((1-(1+7%)^-15)/7%)/(1+7%)^15+1000/(1+7%)^30=941.93

7. Coupon =8%*1000 =80
Par Value =1000
Number of years =5
Price =1050
YTM using Financial Calculator
N=5;PMT=80;PV=-1050;FV=1000;CPT I/Y =6.79%
YTM =6.79%

8. Coupon =6%*1000 =60
Par Value =1000
Number of years =10
Price =940
YTM using Financial Calculator
N=10;PMT=60;PV=-940;FV=1000;CPT I/Y =6.85%
YTM =6.85%