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Homework answers / question archive / Compute the semi-annually compounded yield to maturity from given price for the specified coupon bond or the price from given YTM

Compute the semi-annually compounded yield to maturity from given price for the specified coupon bond or the price from given YTM

Accounting

Compute the semi-annually compounded yield to maturity from given price for the specified coupon bond or the price from given YTM.

 

a. When the yield to maturity (YTM) of the 10 year 1.50% semi-annually coupon paying T-note is 1.01%, what is the price for this T-note?

b. When the price of the 2 year 2.25% semi-annually coupon paying T-note is 97.9872, what is the yield to maturity (YTM)?

 

Please show me the process of solving with Excel or Writing and show me the process.

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a) Computation of Price of Bond using PV Function in Excel:

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

Here,

PV = Price of Bond = ?

Rate = 1.01%/2 = 0.505% (Semiannually)

Nper = 10 Years * 2 = 20 Periods 

PMT = $100*1.50%/2 = $0.75 

FV = $100 (assumed)

Substituting the values in formula:

=-pv(0.505%,20,0.75,100)

PV or Price of Bond = $104.65

 

b) Computation of Yield to Maturity using Rate Function in Excel:

=rate(nper,pmt,-pv,fv)*2

Here,

Rate = Yield to Maturity = ?

Nper = 2 Years * 2 = 4 Periods

PMT = $100*2.25%/2 = $1.125

PV = $97.9872

FV = $100 (assumed)

Substituting the values in formula:

=rate(4,1.125,-97.9872,100)*2 

Rate or Yield to Maturity = 3.30%

 

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