Question

# A 20-year maturity bond with face value of \$1,000 makes annual coupon payments and has a...

A 20-year maturity bond with face value of \$1,000 makes annual coupon payments and has a coupon rate of 8.8%. (Do not round intermediate calculations. Enter your answers as a percent rounded to 3 decimal places.)

a. What is the bond’s yield to maturity if the bond is selling for \$980?

b. What is the bond’s yield to maturity if the bond is selling for \$1,000?

c. What is the bond’s yield to maturity if the bond is selling for \$1,180?

Given, the face value of the bond (F)= \$1,000

Stated interest rate = 8.8% payable annually

Coupon amount (C) = \$1,000 * 8.8% = \$88

Maturity period (n) = 20 years

1. The bond is selling at (P) = \$980

Yield to maturity = C+((F−P)/n)/(F+P)2 = \$88+((\$1000−\$980)/20)/(\$1000+\$980)/2 = 8.989%

2. The bond is selling at (P) = \$1,000

Yield to maturity = C+((F−P)/n)/(F+P)2 = \$88+((\$1000−\$1000)/20)/(\$1000+\$1000)/2 = 8.800%

3. The bond is selling at (P) = \$1,180

Yield to maturity = C+((F−P)/n)/(F+P)2 = \$88+((\$1000−\$1180)/20)/(\$1000+\$1180)/2 = 7.247%

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