1  PARTC The market price of a Rs1,000 par value bond carries a coupon rate of 14 per cent and maturing after 5 years is Rs 1050

1 

(a.) Calculation of Bond's Yield to maturity :

Using Financial calculator Rate function of Excel :

=RATE(nper,pmt,pv,fv)

nper is the number of years of maturity i.e 5

pmt is coupon payment i.e 1000 * 14% = 140

pv is the current market price i.e 1050

fv is the face value i.e 1000

=RATE(5,140,-1050,1000)

Yield to maturity is 12.59%

(b.) Calculation of Yield to maturity using Approximation formula :

YTM = {Coupon + [(Redemption Value - Market Price) / Number of years of maturity] } / [(Redemption Value + Market Price) / 2]

= {140 + [(1000 - 1050) / 5] } / [(1000 + 1050) / 2 ]

= 130 / 1025

= 0.12682926829 or 12.682926829% or 12.68%

2 

Present value = Future / (1 + r)^n

Present value = 53,159 / (1 + 0.15)^23

Present value = 53,159 / 24.891458

Present value = $2,135.632227

Deposit in 11 years = Presnet value (1 + r)^n

Deposit in 11 years = 2,135.632227 (1 + 0.15)^11

Deposit in 11 years = 2,135.632227 * 4.652391

Deposit in 11 years = $9,935.80