A bond has a par value of $1,000, pays $50 semiannually and has a maturity of 10

Question

A bond has a par value of $1,000, pays $50 semiannually and has a maturity of 10 years. If the bond earns 12% per year, what is the price of the bond? What is the yield to maturity for the bond? What would be the bond's price if the rate earned declined to 8% per year? If the maturity period is reduced to 5 years and the required rate of return is 8%, what would be the price of the bond? What is the yield to maturity for the bond when the maturity is 5 years and the required rate of return is 8%?

Explanation / Answer

PV of Interest Payment=$50*11.47=$573.50

PV of Maturity = $1000*.3118=$311.80

Current Value of Bond=$885.30

YTM= 12%

Price of Bond if Rate declined to 8%

Value of Bond=$1135.90

If the maturity period is reduced to 5 years and the required rate of return is 8%

Value of Bond=$1081.11

YTM=6.071%

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