Question

A two-year bond with par value $1,000 making annual coupon payments of $91 is priced at $1,000.

**a.** What is the yield to maturity of the bond?
**(Round your answer to 1 decimal place.)**

YTM =

**b.** What will be the realized compound yield to
maturity if the one-year interest rate next year turns out to be
(a) 7.1%, (b) 9.1%, (c) 11.1%?**(Do not round intermediate
calculations.** **Round your answers to 2 decimal
places.)**

(a)

(b)

(c)

Answer #1

a). To find the YTM, we need to put the following values in the financial calculator:

INPUT | 2 | -$1,000 | $91 | $1,000 | |

TVM | N | I/Y | PV | PMT | FV |

OUTPUT | 9.1% |

b). Realized Compound YTM = (Vt / V0)^1/t - 1

(a). Vt = Coupon(1 + ytm) + [Coupon + Maturity Value]

= $91(1.071) + $1,091 = $97.46 + $1,091 = $1,188.461

Realized Compound YTM = [$1,188.461/$1,000]^{1/2} - 1 =
1.0902 - 1 = 0.0902, or 9.02%

(b). Vt = Coupon(1 + ytm) + [Coupon + Maturity Value]

= $91(1.091) + $1,091 = $99.281 + $1,091 = $1,190.281

Realized Compound YTM = [$1,190.281/$1,000]^{1/2} - 1 =
1.091 - 1 = 0.091, or 9.10%

(c). Vt = Coupon(1 + ytm) + [Coupon + Maturity Value]

= $91(1.111) + $1,091 = $101.101 + $1,091 = $1,192.101

Realized Compound YTM = [$1,192.101/$1,000]^{1/2} - 1 =
1.0918 - 1 = 0.0918, or 9.18%

A 25-year maturity bond with par value $1,000 makes semiannual
coupon payments at a coupon rate of 8%.
a. Find the bond equivalent and effective
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(Round your intermediate calculations to 4 decimal places.
Round your answers to 2 decimal places.)
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%
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intermediate calculations. Round your answers to 3 decimal
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Duration 4% YTM:
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round intermediate calculations. Enter your answers as a percent
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