Question

Suppose a​ ten-year, $ 1,000 bond with an 8.9 % coupon rate and semiannual coupons is trading for $ 1,034.56

a. What is the​ bond's yield to maturity​ (expressed as an APR with semiannual​ compounding)?

b. If the​ bond's yield to maturity changes to 9.9 % ​APR, what will be the​ bond's price?

Answer 1

Ans:- In this question, we need to find the YTM and Price of the bond. we will use the Rate function of excel to find the YTM and PV function of excel to find the Bonds Price.

For YTM Nper=10*2=20,Pmt=$1000*8.9%/2 =$44.5, PV=-$1034.56, FV=$1000

For Price of Bond Rate =9.9%/2, Nper =20, Pmt=-$44.5,FV=-$1000

Note:- we have multiplied YTM by 2 to express the Rate as APR.

Therefore, the YTM of the Bond is 8.38% and the Price of the bond will be $937.42 if YTM changes to 9.9%.