Question

Suppose a ten-year $1000 bond with an 8% coupon rate and semiannual coupons is trading for $1034.74.

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%APR, what will be the bond's price?

Answer #1

given interest rate = 8%

cmp=$1034.74

maturity value= 1000

interest=1000*8%=80

semi annual interest =80/2=$40

n=10*2=20

ytm=3.76 semi annual

yearly =3.76*2=7.52 %

2) calculation fo price of bond if ytm is 9%

Given interest from above $40

maturity =1000

yield =9/2=4.5

n=10*2=20

PRICE OF BOND = Interest *PVAF( Yield %, n Years) + Maturity Value * PVF (Yield %, nth year)

=40*PVAF(4.5%, 20)+10000*PVF(4.5%, 20th year)

=40*13.0079+1000*.4146

=$934.92

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