The YTM on a bond is the interest rate you earn on your investment if interest r
ID: 2720307 • Letter: T
Question
The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY).
Suppose that today you buy a bond with an annual coupon of 7 percent for $1,090. The bond has 14 years to maturity. What rate of return do you expect to earn on your investment? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Two years from now, the YTM on your bond has declined by 1 percent, and you decide to sell. What price will your bond sell for? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY).
Explanation / Answer
1)
Compute the rate using the excel function.
PV= 1090
Nper = 14
FV = 1000
Payment = $70.
Rate = Rate(Nper,Pmt,FV,FV) = Rate(14,-70,-1090,1000) = 7.346%.
2)
1)
Compute the rate using the excel function.
Nper = 12
FV = 1000
Payment = $70.
Rate = 6.346
PV= PV(Rate,Nper,FV,FV) = PV(0.06346,12,-70,1000) = 97.99.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.