Question

Q14. Find the yield to maturity of the following securities: A security paying $1,000 in one...

Q14. Find the yield to maturity of the following securities:

  1. A security paying $1,000 in one year, for which you pay $926 today.
  2. A security paying $80 one year from now and $1,080 two years from now, for which you pay $1,050 today.
  3. A security paying $50 every six months for the next five years (beginning six months from now), plus the return of the face value of $1,000 at the end of the five years, for which you pay $1,000 today.

Please include solutions, not the ones already posted (Not correct). Thank you.

  1. A security paying $50 every six months for the next five years (beginning six months from now), plus the return of the face value of $1,000 at the end of the five years, for which you pay $1,000 today.

Homework Answers

Answer #1

a

Future value = present value*(1+ rate)^time
1000 = 926*(1+Interest rate/100)^1
Interest rate % = 7.99

b

                  K = N
Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N
                   k=1
                  K =2
1050 =∑ [(8*1000/100)/(1 + YTM/100)^k]     +   1000/(1 + YTM/100)^2
                   k=1
YTM% = 5.3

c

                  K = Nx2
Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2
                   k=1
                  K =5x2
1000 =∑ [(10*1000/200)/(1 + YTM/200)^k]     +   1000/(1 + YTM/200)^5x2
                   k=1
YTM% = 10
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