Question

1. Maturity (years) = 5 Face Value = $1,000 Coupon Rate = 3.00% Price = $900 Coupon (Annual)

What is the YTM (annual) of the above bond?

A 5.38%

B 5.30%

C 5.33%

D 4.80%

E 5.36%

2. Consider a bond with the following features: Maturity = 7 years Face value = $1,000 Coupon rate = 4% Semiannual coupons Price = $993

What is this bond's YTM stated as an annual rate?

A 3.2500%

B 4.1161%

C 2.0581%

D 6.500%

Answer 1

1. Future value= $1,000

Time= 5 years

Present value= $900

Coupon payment= 3% 0.03*1,000= $30

The yield to maturity is calculated using a financial calculator by entering the below:

FV= 1,000; PV= 900; N= 5; PMT= 30

Press CPT and I/Y to calculate the yield to maturity

The yield to maturity of the bond is 5.33%.

2. Future value= $1,000

Time= 7 years*2= 14 semi-annual periods

Present value= $933

Coupon payment= 4% /2= 2% 0.02*1,000= $20

The yield to maturity is calculated using a financial calculator by entering the below:

FV= 1,000; PV= 933; N= 14; PMT= 20

Press CPT and I/Y to calculate the yield to maturity

The yield to maturity of the bond is 2.58% semi-annually. 2.58*2= 5.16 per annum.