A 8.3 percent coupon (paid semiannually) bond, with a $1,000 face value and 23 y

Question

A 8.3 percent coupon (paid semiannually) bond, with a $1,000 face value and 23 years remaining to maturity. The bond is selling at $900. (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161))

An 5.4 percent coupon (paid quarterly) bond, with a $1,000 face value and 10 years remaining to maturity. The bond is selling at $914. (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161))

An 7.4 percent coupon (paid annually) bond, with a $1,000 face value and 8 years remaining to maturity. The bond is selling at $1,064. (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161))

Explanation / Answer

(a)
Yield to maturity can be computed as follows:
{I + [(F-P)/n]} / [(F+P)/2]
Interest=I= 8.3%*$1000*1/2= $41.5
Face Value= F= $1000
Price= P= $900
Term= n= 23 years= 23*2= 46 semi-annual terms
Hence, Yield to maturity= {I + [(F-P)/n]} / [(F+P)/2]= {41.5 + [(1000-900)/46]} / [(1000+900)/2]
= 4.59%

(b)
Yield to maturity can be computed as follows:
{I + [(F-P)/n]} / [(F+P)/2]
Interest=I= 5.4%*$1000*1/4= $13.5
Face Value= F= $1000
Price= P= $914
Term= n= 10 years= 10*4= 40 quarters
Hence, Yield to maturity= {I + [(F-P)/n]} / [(F+P)/2]= {13.5 + [(1000-914)/40]} / [(1000+914)/2]
= 1.71%

(c)
Yield to maturity can be computed as follows:
{I + [(F-P)/n]} / [(F+P)/2]
Interest=I= 7.4%*$1000 = $74
Face Value= F= $1000
Price= P= $1064
Term= n= 8 years
Hence, Yield to maturity= {I + [(F-P)/n]} / [(F+P)/2]= {74 + [(1000-1064)/8]} / [(1000+1064)/2]
= 6.40%

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