Consider a bond with a 6% annual coupon and a face value of $900. Complete the f
ID: 1150147 • Letter: C
Question
Consider a bond with a
6%
annual coupon and a face value of
$900.
Complete the following table. (Enter your responses rounded to two decimal places.)
Years to Maturity
Yield to Maturity
Current Price
2
4%
?
2
6%
?
3
6%
?
5
4%
?
5
8%
?
When the yield to maturity is
less than
greater than
equal to
the coupon rate, the bond's current price is below its face value. For a given maturity, the bond's current price
rises
falls
does not change
as the yield to maturity rises. For a given yield to maturity, a bond's value
falls
rises
does not change
as its maturity increases. When the yield to maturity is
equal to
greater than
less than
the couponrate, a bond's current price equals its face value regardless of the number of years to maturity.
Years to Maturity
Yield to Maturity
Current Price
2
4%
?
2
6%
?
3
6%
?
5
4%
?
5
8%
?
Explanation / Answer
Formula,
=PV(4%,2,54,900,0) =$933.95
=PV(6%,2,54,900,0) =$900
= PV(6%,3,54,900,0) =$900
= PV(4%,5,54,900,0) = $980.13
= PV(8%,5,54,900,0) = $828.13
When the yield to maturity is greater than the coupon rate, thebond’s current price is below its face value.
For a given maturity, the bond’s current price falls as the yield to maturity rises
For a given yield tomaturity, a bond’s value rises as its maturity increases.
When the yield to maturity is equal to the coupon rate, a bond’s current price equals its face value regardless of the number of years to maturity.
Years to Maturity Yield to Maturity Current Price 2 4% 933.95 2 6% 900.00 3 6% 900.00 5 4% 980.13 5 8% 828.13Related Questions
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