Bond A has a 9% annual coupon, while Bond B has a 7% annual coupon. Both bonds have the same maturity, a face value of $1,000, a
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%