Final answer:
To find the YTM of the bond, a financial calculator or iterative methods are needed as the equation for YTM is not solvable algebraically. The future value of the bond is its face value of $1,000. For a bond to be sold at the same price with a decreased interest rate to 7%, the annual payment would need to be recalculated accordingly.
Step-by-step explanation:
To calculate the yield to maturity (YTM) for a corporate bond issued by DaimlerChrysler with the given parameters, one would need to employ a financial calculator or iterative methods as the formula for YTM is complex and cannot be solved algebraically. The YTM is the internal rate of return (IRR) of the bond, which equates the present value of the bond's future cash flows to its current price.
The future value of the corporate bond is simply its face value, which is $1,000, since the future value does not consider the current market price or the yield; it is the amount the bond will pay back at maturity.
For part A, if the interest rates decrease to 3%, the maturity of the bond does not change; it will still mature in 11 years. The coupon rate is fixed unless the bond is a variable rate bond, which is not indicated in this case.
For part B, if the interest rate decreases to 7%, to sell the bond at the same price of $800.20, we need to determine the new annual payment that will provide a 7% yield. One way to approach this is to solve for the coupon payment using a present value of an annuity formula, where the present value is $800.20, the yield (discount rate) is 7%, and the number of periods is 11 years.