Question

A 20-year maturity bond with face value of $1,000 makes annual coupon payments and has a coupon rate of 9.40%. (Do not round intermediate calculations. Enter your answers as a percent rounded to 3 decimal places.)

a. What is the bondâs yield to maturity if the bond is selling for $1,040?
Yield to maturity %
b. What is the bondâs yield to maturity if the bond is selling for $1,000?
Yield to maturity %
c. What is the bondâs yield to maturity if the bond is selling for $1,240?
Yield to maturity %

Answer 1

Answer and Explanation:

The computation of the yield to maturity is shown below:

a. When the bond sale price is $1,040

Given that

FV = $1,000

PV = $1,040

PMT = $1,000 × 9.40% = $94

NPER = 20

The formula is shown below:

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

After applying the above formula, the yield to maturity is 8.9630%

b. When the bond sale price is $1,000

Given that

FV = $1,000

PV = $1,000

PMT = $1,000 × 9.40% = $94

NPER = 20

The formula is shown below:

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

After applying the above formula, the yield to maturity is 9.4%

c. When the bond sale price is $1,240

Given that

FV = $1,000

PV = $1,240

PMT = $1,000 × 9.40% = $94

NPER = 20

The formula is shown below:

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

After applying the above formula, the yield to maturity is 7.1144%