Data:
A (amount) = ?
P (Principal) = $ 4000
r (rate) = 6% → 0.06
t (time) = 2 years
Formula:
Solving:
A (amount) = ?
P (Principal) = $ 4000
r (rate) = 6% → 0.06
t (time) = 2 years
Formula:
Solving:
a bond with a face value of $1,000 has 12 years until maturity, has a coupon rate of 5.4%, and sells for $1,087. what is the yie
1 answer:
If interest is paid annually the YTM is 4.48% and if interest is paid semi annually YTM is 2.24%. YTM means Yield to maturity that is paid on bonds ,to determine YTM we first calculate interest on the bonds which is explained below. Formula for YTM is given in the attachment.
Interest is paid annually
Annual Interest = 1000*5.4% = 54
YTM = [54 +(1000 - 1087)/12] /(1000+1087)/2 = 46.75 /1043.5
YTM = 4.480%
Interest paid semi annually
Interest = 1000*5.4% = 54/2 = 27
YTM = [27 + (1000 -1087)/24] / (1000+1087)/2 = 23.375/1043.5
YTM = 2.240%
In the above equation, time period is 24(12*2) because time period is semi annual.
A fixed-rate investment, such as a bond, has a speculative rate of return or interest known as yield to maturity (YTM), also known as redemption or book yield. The YTM is predicated on the idea or understanding that an investor buys the security at the current market price and retains it until it matures (reaches its full value), as well as the assumption that all interest and coupon payments are made on schedule.
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Answer:
Explanation:
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Calculate the earnings at the end of 5 years:
Terminal value year 5 =
=$75.526
Discount all potential future cash flows as follows to determine the stock's value:
=$ 54.1945
As a result, the analysts value the stock at $54.20, which is below their own estimates.
3. The value of the stock
Calculate the earnings at the end of 5 years:
Terminal value year 5 =
=$53.8773
Discount all potential cash flows as follows to determine the stock's value:
=$39.460
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Notice that the third question depicts the situation after 5 years, but the final decision will be the same since we are discounting in current terms. If compounding is used, the future value over 5 years is just the same as the first choice, which is the better option.
The presumption in the second portion is that after 5 years, the steady growth rate would be the same as measured in the first part (1).