Question

Lomack Company's bonds have a 8-year maturity, a 8% coupon, paid semiannually, and a par value of $1,000. The market interest rate is 5%, with semiannual compounding.What is the bond's price?A bond has an annual coupon rate of 3.5%, a face value of $1,000, a price of $1,125.1, and matures in 10 year.What is the bond's YTM?

Answer 1

Bond Price = $1,196

YTM = 2.1000% or 0.0210

Step-by-step explanation:

Given the maturity years = 8 years

Coupon rate = 8%

Par value = $1000

Market interest rate = 5%

Since there is semi annual compounding payment so the number of payments, N = 8 * 2 = 16

Half year interest rate = I/Y = 5/2 = 2.5

Annuity payment or PMT = 0.08 × 1,000/2 = 40

FV = 1,000

CPT PV

Present value, PV = -1,195.82504

Price = $1,196

PMT = 1,000 × 0.035 = 35

Future value, FV = 1,000

Present value, PV = -1,125.1

N = 10

CPT I/Y

Now, I/Y = 2.1000

YTM = 2.1000% or 0.0210