Question

type	issue date	price (per $100 par value)	Coupon Rate	Maturity Date	Yield to maturity	Current Yield	Rating
Bond	aug 2005	79.56	4.50%	8-15-2015	-	5.66%	AAA

Treasury notes and bonds. Use the information in the following​ table: Assume a $100,000 par value. What is the yield to maturity of the August 2005 Treasury bond with semiannual payment? Compare the yield to maturity and the current yield. How do you explain this​ relationship?

What is the yield to maturity of the August 2005 Treasury​ bond?   

Compare the yield to maturity and the current yield. How do you explain this​ relationship?  ​(Select the best​ response.)

A. If a bond sells at a​ discount, the yield to maturity is greater than the current yield.

B. If a bond sells at a​ premium, the yield to maturity is greater than the current yield.

C. If a bond sells for its par​ value, the yield to maturity is greater than the current yield.

D. There is no certain relationship between the yield to maturity and the current yield.

Answer 1

YTM is calculated using RATE function in Excel with these inputs :

nper = 10*2 (10 years to maturity with 2 semiannual coupon payments each year)

pmt = 100000 * 4.5% / 2 (semiannual coupon payment = face value * annual coupon rate / 2. This is a positive figure as it is an inflow to the bondholder)

pv = -100000 * 79.56 / 100 (current bond price = face value * 104 / 100. This is a negative figure as it is an outflow to the buyer of the bond)

fv = 100000 (face value of the bond receivable on maturity. This is a positive figure as it is an inflow to the bondholder)

The RATE calculated is the semiannual YTM. To calculate the annual YTM, we multiply by 2. Annual YTM is 7.43%

yield to maturity of the August 2005 Treasury​bond is 7.43%

A. If a bond sells at a​ discount, the yield to maturity is greater than the current yield.