Could you help me this problems, please? Thank you! 1. Suppose that you have a b
ID: 2805863 • Letter: C
Question
Could you help me this problems, please? Thank you!
1. Suppose that you have a bond that has a par value of $1,000 and a coupon interest rate of 6.5%. Its current price is $900 and it will mature in 7 years and pays annually. What is the yield to maturity? YTM__________%
PV
FV
Rate
Periods
Payment
2. What will be the total amount of payments you will have received on this bond if you hold it to maturity (including return of principal)? $ ________
3. Ivan the Investor is considering two different bonds. The first is a taxable corporate bond paying 8%. The second is a tax-free municipal bond paying 6½%. If Ivan’s marginal tax bracket is 33%, what is the equivalent taxable yield for the municipal bond?___________%
PV
FV
Rate
Periods
Payment
Explanation / Answer
1)
PV = 900, FV = 1000, Periods = 7, Payment =6.5%*1000 = 65
YTM = RATE(7,65,-900,1000) = 8.4504%
2)
Payments = 7*65 + 1000 = 1455
3)
equivalent taxable yield = normal yield / (1 - tax rate)
= 6.5% / (1-33%)
= 9.70%
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