Question

Joel needs to compute the YTM of the following 10-year bond. It has a $10,000 face value, a 4.5% coupon, paid twice a year and it is currently selling in the market for $9,610.27. The YTM is: 6.0%, 5.0%, 2.5% or 2.6%

A 5-year, $1,000 face bond with a 3% coupon is currently selling for $955.48. What is the Coupon Yield on this bond? 4.10%, 3.14%, 3.25%, or 3.0%

Answer 1

1). Given about a bond,

Face value = $10000

coupon rate = 4.5% paid semiannually,

So, semiannual coupon payment = (4.5%/2) of 10000 = $225

current price of the bond = $9610.27

years to maturity = 10 years

So, Semiannual yield on the bond can be calculated on financial calculator using following values:

FV = 10000

PV = -9610.27

N = 2*10 = 20

PMT = 225

Compute for I/Y, we get I/Y = 2.50

So, semiannual yield on the bond is 2.50%

Or Yield to maturity = 2*2.5 = 5%

Option B is correct.

2). Given about a bond,

Current price = $955.48

Face value = $1000

Coupon rate = 3%

So, annual coupon = 3% of 1000 = $30

Current yield = annual coupon/price = 30/955.48 = 3.14%

So, option B is correct.