Question

A 30-year, $1,000 par value bond has a 7.5% annual payment coupon. The bond currently sells for $910. If the yield to maturity remains at its current rate, what will the price be 10 years from now?

		$884.19
		$921.01
		$930.96
		$947.25
		$978.50

Answer 1

Step - 1:

first we need to find YTM. Using financial calculator

(N = 30 , PV = -910 , PMT = 75 , FV = 1000) and then press CPT(compute) and I/Y

you will get YTM(I/Y) = 8.32401%

Where N = number of periods

PV = Price of the bond

PMT = coupon = 1000*7.5% = 75

FV = redemption value = 1000

YTM can also be found Using rate function in excel

[=rate(30,75,-910,1000)]

After 10 years from now everything(every variable) remains same except number of periods will become 20 and we have to find PV (present value)

using calculator:

(N = 20 , I/Y = 8.32401% , PMT = 75, FV =1000)

PV = Price = 921.01

second option Is correct.