Question

1. Match the yield to maturity to the terms of the bond. All of these bonds pay interest twice a year.

-A.B.C.D.E.	"A $1,000 par value bond that matures in 6 years is currently selling for $1,029.03. The bond pays $40.00 of interest every six months."
-A.B.C.D.E.	"A $1,000 par value bond that matures in 20 years is currently selling for $1,029.08. The bond pays $37.00 of interest every six months."
-A.B.C.D.E.	"A $1,000 par value bond that matures in 17 years is currently selling for $1,123.31. The bond pays $31.00 of interest every six months."
-A.B.C.D.E.	"A $1,000 par value bond that matures in 7 years is currently selling for $1,010.04. The bond pays $53.00 every six months."
-A.B.C.D.E.	"A $1,000 par value bond that matures in 18 years is currently selling for $949.97. The bond pays $64.00 of interest every six months."

A.	7.39%
B.	13.55%
C.	10.39%
D.	5.11%
E.	7.13%

Answer 1

Yield can be found using RATE function in EXCEL

1. RATE(nper,pmt,pv,fv,type)

Interest is paid once in 6 months. nper=12 (number of periods=2*6)

pmt=$40

pv=$1029.03

fv=face value=$1000

=RATE(12,40,-1029.03,1000,0)

=3.70%

Semi annual yeild=3.70%

Annual yield=3.70%*2=7.39% (A)

2. RATE(40,37,-1029.08,1000,0)

=3.56%

Semi annual yeild=3.56%

Annual yield=3.56%*2=7.13% (E)

3. RATE(34,31,-1123.31,1000,0)

=2.55%

Semi annual yeild=2.55%

Annual yield=2.55%*2=5.11% (D)

4. RATE(14,53,-1010.04,1000,0)

=5.20%

Semi annual yeild=5.20%

Annual yield=5.20%*2=10.39% (C)

5. RATE(36,64,-949.97,1000,0)

=6.77%

Semi annual yeild=6.77%

Annual yield=6.77%*2=13.55% (B)