Question

Suppose a​ ten-year, $ 1000 bond with an 8.5 % coupon rate and semiannual coupons is trading for $ 1035.72

.

a. What is the​ bond's yield to maturity​ (expressed as an APR with semiannual​ compounding)?

b. If the​ bond's yield to maturity changes to 9.3 % APR, what will be the​ bond's price?

Answer 1

a.

Yield to maturity of bond is calculated in excel and screen shot provided below:

Yield to maturity of bond is 7.97%.

b.

Price of bond at 9.30% APR is calculated in excel and screen shot provided below:

Price of bond at 9.30% APR is $948.64.