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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.
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.
Expert Solution
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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