9. Bond listings and yield spreads
The following bond list is from the business section of a newspaper on January 1, 2016. Notice that each bond shown matures on January 1 in 5, 10, or 30 years. Each bond shown pays a semiannual coupon and the coupon rate is in the column labeled Coupon.
The Last Price and Last Yield columns indicate each bond’s price and YTM at the end of trading. EST Spread indicates the bond’s spread above the relevant US Treasury benchmark, given as a percentage. UST indicates which US Treasury security maturity is the relevant benchmark for each bond. EST Volume shows the number of bonds traded during the day. Prices are stated relative to a par value of $100.
Fill in the nominal YTM for Pickman Inc.’s bonds. (Note: Do not round your intermediate calculations.)
Company |
Coupon |
Maturity |
Last Price |
Last Yield |
EST Spread |
UST (Years) |
EST Volume (1000s) |
---|---|---|---|---|---|---|---|
Schubert Inc. | 8.13% | 01-01-2026 | $82.25 | 11.11% | 6.20% | 10 | 72,070 |
Chapman Inc. | 9.63% | 01-01-2046 | $80.48 | 12.05% | 7.15% | 30 | 65,275 |
Rust Inc. | 4.50% | 01-01-2021 | $95.18 | 5.62% | 1.37% | 5 | 59,277 |
Murphy & Co. | 5.38% | 01-01-2021 | $101.02 | 5.14% | 0.89% | 5 | 57,465 |
Pickman Inc. | 7.75% | 01-01-2026 | $93.11 | 3.89% | 10 | 56,305 |
Given,
The bond matures in 5, 10 or 30 years. The Pickman Inc bond matures on 1 Jan 2026. Date of evaluation is 1 Jan 2016. Therefore, term to maturity is 10 years.
YTM calculated using RATE function of Excel is 8.80%
Details of calculation as follows:
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