Question

A 20-year maturity bond with par value $1,000 makes semiannual coupon payments at a coupon rate of 9%.
a.
Find the bond equivalent and effective annual yield to maturity of the bond if the bond price is $940.(Round your intermediate calculations to 4 decimal places. Round your answers to 2 decimal places.)
Bond equivalent yield to maturity %
Effective annual yield to maturity %
b.
Find the bond equivalent and effective annual yield to maturity of the bond if the bond price is $1,000.(Do not round intermediate calculations.Round your answers to 2 decimal places.)
Bond equivalent yield to maturity %
Effective annual yield to maturity %
c.
Find the bond equivalent and effective annual yield to maturity of the bond if the bond price is $1,060.(Round your intermediate calculations to 4 decimal places. Round your answers to 2 decimal places.)
Bond equivalent yield to maturity %
Effective annual yield to maturity %

Answer 1

PMT = 1000 * 9% / 2 = 45

a. Using financial calculator, Enter N = 40, FV = 1000, PV = -940, PMT = 45. Press the I/Yr key = 4.84%

Bond equivalent yield to maturity = 4.84% * 2 = 9.68%.

Effective annual yield to maturity = (1.0484)2 - 1 = 9.91%

b. Using financial calculator, Enter N = 40, FV = 1000, PV = -1000, PMT = 45. Press the I/Yr key = 4.50%

Bond equivalent yield to maturity = 4.50% * 2 = 9% same as annual coupon rate.

Effective annual yield to maturity = (1.045)2 - 1 = 9.20%

c. Using financial calculator, Enter N = 40, FV = 1000, PV = -1060, PMT = 45. Press the I/Yr key = 4.19%

Bond equivalent yield to maturity = 4.19% * 2 = 8.38%

Effective annual yield to maturity = (1.0419)2 - 1 = 8.55%

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