Question

A 30-year maturity bond with face value of $1,000 makes annual coupon payments and has a coupon rate of 8%. (Do not round intermediate calculations. Enter your answers as a percent rounded to 3 decimal places.)

Answer 1

Answer and Explanation:

a. The yield to maturity is

Given that

FV = $1000,

PV = -$900

PMT = 80 (8% of $1,000)

NPER = 30

The formula is

=RATE(NPER,PMT,-PV,FV,TYPE)

after applying the formula, the rate is 8.97%

b. In the case when the bond is sold at par so this means that yield to maturity is equivalent to the coupon rate i.e. 8%

c. The yield to maturity is

Given that

FV = $1000,

PV = -$1100

PMT = 80 (8% of $1,000)

NPER = 30

The formula is

=RATE(NPER,PMT,-PV,FV,TYPE)

after applying the formula, the rate is 7.18%