Question

1. A company has a bond that yields (YTM) 10.60% and recently had capital gains of 0.29% ending with the price of 641.5174498 then the interest payment is closest to?

a. $66.00

b. 0.10%

c. $622.64

d. $640.13

2. You are eyeing an investment in Treasury Notes for a full lot (i.e. PAR=$100,000), and find a note with a maturity of 100 years. This particular Treasury has a YTM of 4.95%, and a stated rate of interest of 3.48% with a maturity of 100 years. The market price of this treasury is closest to?

a. $70,526.45

b. $35,668.71

c. $140,300.56

d. $70,539.88

Answer 1

Part 1:
Answer: Option a is correct
YTM = Current Yield + Capital Gains Yield
Current Yield = YTM - Capital Gains Yield
=10.60% - 0.29%
=0.1031
Current Yield = Coupon Amount / Price
Coupon Amount = Price * Current Yield
=641.5174498*0.1031
66.140449 or 66 (Rounded to the closest whole number)

Answer: So, the interest payment $66

Part 2:
Answer: Option a is correct
Price of the bond=Par*coupon rate/yield*(1-1/(1+yield/2)^(2*t))+Par value/(1+yield/2)^(2*t)
=100000*3.48%/4.95%*(1-1/(1+4.95%/2)^(2*100))+100000/(1+4.95%/2)^(2*100)
=3480/4.95%*0.992476592+100000/132.9184896
=69774.11192+752.3407789
=70526.45