Question

5. A bond with 15 years to maturity pays a 6.1% coupon annually. Currently, the bond sells for par value. What is the bond’s YTM? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit the % sign in your response. For example, an answer of 15.39% should be entered as 15.39.)

6. A zero coupon bond with 15 years to maturity has a required return of 9%. What is the price of the bond? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit any commas and the $ sign in your response. For example, an answer of $1,000.50 should be entered as 1000.50.)

Answer 1

5.Information provided:

Par value= future value= $1,000

Current price= present value= $1,000

Time= 15 years

Coupon rate= 6.1%

Coupon payment= 0.061*1,000= $61

The yield to maturity is calculated by entering the below in a financial calculator:

FV= 1,000

PV= 1,000

N= 15

PMT= 61

Press the CPT key and I/Y to compute the yield to maturity.

The value obtained is 6.1.

Therefore. the yield to maturity is 6.10.

6.Information provided:

Par value= future value= $1,000

Time= 15 years

Yield to maturity= 9%

The price of the bond is calculated by computing the present value.

Enter the below in a financial calculator to compute the present value:

FV= 1,000

N= 15

I/Y= 9

Press the CPT key and PV to compute the present value.

The value obtained is 274.54.

Therefore, the price of the bond is 274.54.