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Problem 8.09 (Excel Video) Karen White is looking to invest in a three-year bond that makes...

Problem 8.09 (Excel Video) Karen White is looking to invest in a three-year bond that makes semi-annual coupon payments at a rate of 5.275 percent. If these bonds have a market price of $987.74, what yield to maturity can she expect to earn

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Answer #1
Par value of bond: 1000
Semi annual payment (1000*5.275%*6/12) = 26.375
Annuity fr 6 perriods at 2.865% 5.44151
PVF fr 6th period at 2.865% 0.844101
Present value of interest payments 143.5198
Present value of maturity value 844.101
Price of bonds 987.6208
Hence, price computed above is equal t o price given
Hence, price computed above is equal t o price given
Annual yield to maturity = 2.865*2= 5.73%
YTM = 5.73%
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