Question

Bond Yield One measure of a bond’s performance is its Yield To Maturity (YTM). YTM values for government bonds are complex to calculate and are published in tables. However, they can be approximated with the simple formula YTM = intr + a b , where intr is the interest earned per year, a = face value - current market price years until maturity , and b = face value + current market price 2 . For instance, suppose a bond has a face value of $1,000, a coupon interest rate of 4%, matures in 15 years, and currently sells for $1,180. Then intr = .04 # 1,000 = 40, a = 1000 - 1180 15 = -12, b = 1000 + 1180 2 = 1090, and YTM = 40 - 12 1090 2.57,. Note: The face value of the bond is the amount it will be redeemed for when it matures, and the coupon interest rate is the interest rate stated on the bond. If a bond is purchased when it is first issued, then the YTM is the same as the coupon interest rate. Write a program that requests the face value, coupon interest rate, current market price, and years until maturity for a bond, and then calculates the bond’s YTM.

Enter face value of bond: 1000
Enter coupon interest rate: .04
Enter current market price: 1180
Enter years until maturity: 15
Approximate YTM: 2.57%

Answer 1

A bond is a financial instrument that represents a loan made by an investor to a borrower. YTM, or Yield to Maturity, is a measure of a bond's performance and can be approximated using a simple formula. The YTM takes into account the bond's face value, coupon interest rate, current market price, and years until maturity.

Step-by-step explanation:

A bond is a financial instrument that represents a loan made by an investor to a borrower. It has a face value, which is the amount the borrower agrees to pay the investor at maturity. The bond also has a coupon interest rate, which is usually paid semi-annually. The Yield to Maturity (YTM) is a measure of a bond's performance and can be approximated using the formula YTM = intr + a b, where intr is the interest earned per year, a is the difference between the face value and the current market price divided by the years until maturity, and b is the sum of the face value and the current market price squared.

For example, let's consider a bond with a face value of $1,000, a coupon interest rate of 4%, a maturity of 15 years, and a current market price of $1,180. Using the formula, we can calculate intr = 0.04 * 1000 = $40, a = (1000 - 1180) / 15 = -12, and b = (1000 + 1180) ^ 2 = 1090. Plugging these values into the formula, we get YTM = (40 - 12) / (1090 * 2) = 2.57%, which is the approximate YTM for this bond.