12. A ten-year bond pays 7% interest on a $1000 face value annually. If it currently sells for $1,195, what is?
12. A ten-year bond pays 7% interest on a $1000 face value annually. If it currently sells for $1,195, what is its approximate yield to maturity? Please help and show work
- cactusgeneLv 77 years agoFavorite Answer
YTM = 4.53%, based on annual interest payments. Here is an online financial bond calculator to solve the problem. In the left sidebar of this site you can click on "Yield to Maturity" and you get the formula used and the concept on how to solve it:
- 7 years ago
When you discount all the future bond cashflows using the YTM, you end up with the current bond price. It follows that the YTM must be the value of y such that the following equation holds.
1195 = 70*[1/(1+y) + 1/(1+y)^2 + ... + 1/(1+y)^10] + 1000/(1+y)^10
You can solve this equation iteratively, e.g. using the Solver function in MS Excel, to find the approximate yield to maturity.
- 3 years ago
A ten-yr bond can pay eight % annual curiosity (paid semiannually). If identical bonds are presently yielding 6 % yearly, what's the market price of the bond? Question 3 choices: A) $1,000 B) $1,147.20 C) $1,148.Seventy seven D) $1,080.00