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1 year ago

QUESTION 3

Business

1 answer:

viva [34]1 year ago

6 0

The values of bond 1 and bond 2 based on the information will be RM7892.93 and RM10000 respectively.

<h3>How to illustrate the information?</h3>

The price of Bond 1 = RM7,892.93, Bond is selling at a discount because the bond price is less than the Par value

Price of Bond 2 = RM10,000, Bond is selling at par, because the bond price is equal to the par value

Price of bond 3 = RM11,240.90 Bond is selling at a premium because the bond price is more than the par value

The yield to maturity (YTM) is the estimated rate of return. The yield to maturity assumes that the buyer of the bond will hold the bond until its maturity date, and will then reinvest each interest payment at the same interest rate. Therefore, the yield to maturity includes the coupon rate that's within its calculation. The yield to maturity is also known as the redemption yield.

The YTM will be:

= [1800 + (18000 - 21800)/10] / [(18000 + 21800)/2]

= (1800 - 380)/19900

= 1420/19900

= 7.14%

Therefore the values of bond 1 and bond 2 based on the information will be RM7892.93 and RM10000 respectively and the YTM is 7.14%

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