Suppose a 10-year, $1000 bond with an 8% coupon rate and semiannual coupons is trading for $1034.74. What is the bond’s yield to

Question

3 years ago

9

maturity (expressed as an APR with semiannual compounding)? If the bond’s yield to maturity changes to 9% APR, what will the bond’s price be?

1 answer:

Mamont248 [21] · Answer 1 · 2022-01-02T08:00:01+03:00

Answer:

The yield to maturity is 7.5%

The price of the bond at 9% yield to maturity is $934.96

Explanation:

In calculating the yield I used the rate formula in Excel, rate formula is given as:

=rate(nper,pmt,-pv,fv)

nper is period to maturity of 10 years multiplied by 2(semi-annual compounding)

pmt is the coupon interest payable semi-annually which 8%*$1000/2=$40

pv is the current price of $1034.74

fv is the face value of $1000

=rate(20,40,-1034.74,1000)

=3.75%

APR=3.5%*2=7.5%

Bond price is the present value of the bond at yield of 9% with semi-annual yield of 4.5%

=pv(rate,nper,pmt,fv)

=pv(4.5%,20,40,1000)

pv=$934.96

find attached for details