In each of the following situations, write the equation needed to calculate the

Question

In each of the following situations, write the equation needed to calculate the yield to maturity You do not have to solve the equations for the interest rate i; just write the appropriate equations. a. A simple loan for $350,000 that requires a payment of $475,000 in five years. b. A discount bond with a current price of $720 that has a face value of $1,000 and matures in five years. c. A corporate bond with a face value of $1,000, a current price of $950, a coupon rate of 8%, and a maturity of six years. d. A student loan of $4,000 that requires payments of $275 per year for 20 years. The payments start in three years.

Explanation / Answer

1.
-350000+475000/(1+i)+475000/(1+i)^2......475000/(1+i)^5=0
-350000+475000/i*(1-1/(1+i)^5)=0

2.
-720+1000/(1+i)^5=0

3.
-950+80/(1+i)+80/(1+i)^2.......80/(1+i)^6+1000/(1+i)^6=0
=>-950+80/i*(1-1/(1+i)^6)+1000/(1+i)^6=0

4.
-4000+275/(1+i)^3+275/(1+i)^4...........275/(1+i)^22=0
=>-4000+275/(1+i)^3*(1-1/(1+i)^20)/(1-1/(1+i)^3)=0

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