Question

A? bond's market price is ?$1175. It has a ?$1,000 par? value, will mature in 66 ?years, and has a coupon interest rate of 9 percent annual? interest, but makes its interest payments semiannually. What is the? bond's yield to? maturity? What happens to the? bond's yield to maturity if the bond matures in 12 ?years? What if it matures in 3 ?years?

a.??The? bond's yield to maturity if it matures in 6 years is ___%. ? (Round to two decimal? places.)

b. What happens to the? bond's yield to maturity if the bond matures in 12 ?years?

c. What if it matures in 3 ?years?

Answer 1

Coupon payment frequency = Semi-annually

Price = $1175

FV = $1000

Payment per period (PMT) = 9%/2 * 1000 = $45

a) Number of periods = 6*2 = 12

Using RATE function in excel:

YTM =RATE(12,45,-1175,1000)*2 = 5.53%

b) Number of periods = 12*2 = 24

Using RATE function in excel:

YTM =RATE(24,45,-1175,1000)*2 = 6.84%

Therefore, the yield increases

C) Number of periods = 3*2 = 6

Using RATE function in excel:

YTM =RATE(6,45,-1175,1000)*2 = 2.87%

Therefore, the yield decreases