What is the yield to maturity for a bond paying $85 annually that has 10 years u

Question

What is the yield to maturity for a bond paying $85 annually that has 10 years until maturity and sells for $1,000? What is the rate of return for an investor who pays $1,057 for a bond with 5 years to maturity with a $50 coupon and then sells the bond 1 year after purchase for $1,081? How much would an investor expect to pay for a $1,000 par value bond with a 9% annual coupon that matures in 5 years if the interest rate is 4%? What is the current yield of a bond with a 6% coupon, 4 years until maturity, and a price of Which of the following is fixed (e.g., cannot change) for the life of a given bond? A. Current price Current yield C. Yield to maturity D. Coupon rate 6. Periodic receipts of interest by the bondholder are known as: the coupon rate. a zero-coupon. coupon payments. 0. the default premium.

Explanation / Answer

1) Calculation of yield to maturity

YTM= interest+((Face value-selling price)/n)/(Face value+selling price)/2

=8.5%

2) Earning after 1 year that investor will get/What he invested today

=((1081-1057)+50)/1057 i.e 7%

3)Calculation of price of the bond

Bond price = interest*pvaf (4%,5years)+1000*pvf(4%,5th year)

=(90*4.45)+(1000*0.82)

=1222.59

4) Calculation of current yield of a bond

Interest =1000*6%

=60

Current yield=current earning/current price

=60/750*100 i.e 8%

5) Coupon rate is fixed for the life of the given bond

6)Periodic receipts of interest by bondholder is known as coupn payments

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