Question

If a coupon bond has two years to​ maturity, a coupon rate of 10 ​%, a par value of ​$1000 ​, and a yield to maturity of 12 ​%, then the coupon bond will sell for ​$nothing . ​ (Round your response to the nearest two decimal​ place) The price of a bond and its yield to maturity are ▼ positively related negatively related unrelated .

Answer 1

The right solution is "$966.27".

Step-by-step explanation:

Given values are:

Coupon rate,

= 10%

Par value,

= $1000

Yield of maturity,

= 12%

then,

Coupon will be:

=
`1000* 10 \ percent`

=
`1000* 0.1`

=
`100` ($)

Now,

The present value of coupon will be:

=
`A* ((1-(1+r)^n))/(r)`

By putting the value, we get

=
`100* (1-(1.12)^(-2))/(0.12)`

=
`100* (1-0.7971)/(0.12)`

=
`100* (0.2029)/(0.12)`

=
`169.08` ($)

The present value of par value will be:

=
`(1000)/((1+12 \ percent)^2)`

=
`(1000)/((1.12)^2)`

=
`797.19` ($)

hence,

The price of bond will be:

=
`Present \ value \ of \ coupon+Present \ value \ of \ par \ value`

=
`169.08+797.19`

=
`966.27` ($)