Carl started earning a paycheck and wants to invest some of what he earned. In this situation, why is it important for Carl to b
2 answers:
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Answer:
a. The answer is: $1,008.40
b. The bond's YTM is 3.343%
c. The current yield is 3.826%
Explanation:
a. Bond price formula: ∑(C* / (1+YTM) )
The price of the bond Intro A with i=1,2...10 is:
∑($1,000 x 3.4% / (1 + 3.3%) ) = $1,008.40
b. The price of the corporate bond which has 22 years to maturity is: $1,202.20
Given that the bond is trading at par value, the bond's YTM is:
[Annual Interest Payment + ((Face Value – Current Price) / (Years to Maturity))] / ( ( Face Value + Current Price ) / 2 )
= [$1,000 x 4.6% + (($1,000 - $1,202.20) / 22)] / (($1,000 + $1,202.20) /2)
= 3.343%
c. The bond's current yield is:
Annual Interest Payment / Current Price = $46 / $1,202.2 = 3.826%
Answer:
a) 2.5%
b) 6%
c) 3.5%
Explanation:
The Formula to be used is the <em>habitat hypothesis </em>
as stated in the document attached below
a) it = 2%; it+1 =3%
= 0 + ( 2 + 3 ) / 2
= 2.5% ( two year nominal interest rate )
b) it = 2%; it+1+1 = 10%
= 0 + ( 2 + 10 ) / 2
= 6% ( two year nominal interest rate )
c) it = 2%; 1t+1 = 3%. ∝₂,t = 1%
= 1 + ( 2 + 3 ) / 2
= 1 + 2.5 = 3.5%
