Question

RESULT USING HP10BII+ FINANCIAL CALCULATOR

A U.S. Treasury bond pays a 4.5% coupon rate, has a $1,000 par value, and matures 30 years from now in 2050. The bond's bid quote is 116:10 and the ask quote is 116:12. Coupon payments are semiannual. If you purchase this bon now and hold it until 2050, what would be your annual yield to maturity? O 1.57% 4.50% O 3.12% 3.60% O 7.71%

CAN YOU EXPLAIN HOW YOU GOT THE PRESENT VALUE

Answer 1

We have following data:-

Face Value (FV) = $1000

Coupon Rate (r) = 4.5%

No. of compounding per year = 2

Time Period (t) = 30 year

Here is the solution:-

Calculation of Interest per period (PMT)

PMT = FV × r ÷ 2

PMT = 1000 × 4.5% ÷ 2 = 23

Bond Value = 1000 × (116 + )%

Bond Value = 1163.75

Calculation of No. of compound period till the maturity (NPER)

NPER = No. of compounding per year × time period

NPER = 30 × 2 = 60

Calculation of Yield of maturity (YTM)

Yield of maturity = RATE(NPER,PMT,-PV,FV) × 2

   = RATE(60,22.5,-1163.75,1000) × 2

                              =3.60 % ANSWER