Question

bond has a $1,000 par value, 8 years to maturity, and a 7% annual coupon and sells for $980.

1. What is its yield to maturity (YTM)? Round your answer to two decimal places.

       %

2. Assume that the yield to maturity remains constant for the next four years. What will the price be 4 years from today? Do not round intermediate calculations. Round your answer to the nearest cent.

   $  

Answer 1

a.
YTM = ( Annual Coupon payment + ( Redemption value - Market price ) / Years to maturity ) / ( ( Redemption value + Market price ) / 2 ) = ( 70 + ( ( 1000 - 980 ) / 8 ) ) / ( ( 1000 + 980 ) / 2 )	7.32%
b.
n = 8-4	4
r	7.32%
Price of bond = Coupon * ( 1-(1+r)^-n ) / r + Redemption value * 1/(1+r)^n
Price of bond = (1000*7%) * ( 1-(1+7.32%)^-4 ) / 7.32% + 1000 * 1/(1+7.32%)^4	989.24
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