You have been offered a bond that pays a coupon of 8%. Coupons are paid Semi-annually and first coupon is 6 months away. Bond maturity is 10 yrs and currently selling for 950, what is the YTM?
suggested solution:
N= 4
PMT= $80
PV= -950
FV= 1000
YTM= 8.76%
B) What annualized return do you expect if you are able to sell the bond after 4 yrs for $1050?
N= 4
PMT= $80
PV= -1050
FV= 1000
YTM= 6.54%
OR
Rate of Return? = [Coupon Income+ price change]/ Investment
= 80+100/ 950= 18.95%
suggested solution:
N= 4
PMT= $80
PV= -950
FV= 1000
YTM= 8.76%
B) What annualized return do you expect if you are able to sell the bond after 4 yrs for $1050?
N= 4
PMT= $80
PV= -1050
FV= 1000
YTM= 6.54%
OR
Rate of Return? = [Coupon Income+ price change]/ Investment
= 80+100/ 950= 18.95%