Why Choose Us?
0% AI Guarantee
Human-written only.
24/7 Support
Anytime, anywhere.
Plagiarism Free
100% Original.
Expert Tutors
Masters & PhDs.
100% Confidential
Your privacy matters.
On-Time Delivery
Never miss a deadline.
1) What is the Yield to Maturity (YTM) of a bond which can be bought today for $10,414
1) What is the Yield to Maturity (YTM) of a bond which can be bought today for $10,414.63? The bond has a face value of $10,000. It pays coupons semi-annually at an annual rate of 11.50% per annum and it will mature in exactly 7 years. (2 marks) HINT: First, compute the YTM by multiplying the periodic rate by the coupon frequency. Second, convert this rate to an effective annual rate.
Expert Solution
1.
Given
Face Value = $10,000
Present Value = $10,414.63
Annual rate = 11.50%
Semi annual coupons implies semi annual rate = 11.5/2 = 5.75%
Coupon = Face Value * Interest rate = 10,000 * 0.0575 = $575
Formula for YTM = [ Coupon Payment + (Face Value – Present Value)/time ]/ [Face Value + Present Value)/2]
As coupon payments are semi annual, time = 7 * 2 = 14 payments
Formula for YTM = [ 575 + (10,000 – 10,414.63)/14 ]/ [10,000+ 10,414.63)/2] = 545.3835714/ 10207.315 = 0.0534306 =5.34%
Annual rate = 5.34% * 2 = 10.68%
YTM = 10.68%
Archived Solution
You have full access to this solution. To save a copy with all formatting and attachments, use the button below.
For ready-to-submit work, please order a fresh solution below.
