BrainSoft has 12% coupon bonds on the market with 9 years to maturity. The bonds make semiannual payments and currently sell for 110% of par. What is the current yield on the bonds? se text p.635 curent yield is the coupon payment annual divided by the current price. curernt price=110%* 1000 coupon payment per year = The yield to maturity? n PV FV PMT $ rate $ $ 1,000 The effective annual yield? See text p. 636 & 151 Quoated rate= m= semi annually 9 18 12% times the par value of $1,000 $ #NUM! rate is yield to maturity us formula tab, select financial then rate functions. since this is semi-annual rate, recall we used semiannual n and pmt, we need to multiple by 2 #NUM! #NUM! formula is the good news is that our formula tab has a macro to calculate ear! 3. Interest rates can be quoted in a variety of ways. For financial decisions, it is important that any rates being compared first be converted to effective rates. The relationship between a quoted rate, such as an annual percentage rate, or APR, and an effective annual rate, or EAR, is given by: EAR= (1 + Quoted rate/m)" - 1 where m is the number of times during the year the money is compounded, or, equiva- lently, the number of payments during the year. EAR go to formula tab, select financials then select "Effect" Effect 2 times per year you can see by compounding 2x per year the effective is higher than the YTM
BrainSoft has 12% coupon bonds on the market with 9 years to maturity. The bonds make semiannual payments and currently sell for 110% of par. What is the current yield on the bonds? se text p.635 curent yield is the coupon payment annual divided by the current price. curernt price=110%* 1000 coupon payment per year = The yield to maturity? n PV FV PMT $ rate $ $ 1,000 The effective annual yield? See text p. 636 & 151 Quoated rate= m= semi annually 9 18 12% times the par value of $1,000 $ #NUM! rate is yield to maturity us formula tab, select financial then rate functions. since this is semi-annual rate, recall we used semiannual n and pmt, we need to multiple by 2 #NUM! #NUM! formula is the good news is that our formula tab has a macro to calculate ear! 3. Interest rates can be quoted in a variety of ways. For financial decisions, it is important that any rates being compared first be converted to effective rates. The relationship between a quoted rate, such as an annual percentage rate, or APR, and an effective annual rate, or EAR, is given by: EAR= (1 + Quoted rate/m)" - 1 where m is the number of times during the year the money is compounded, or, equiva- lently, the number of payments during the year. EAR go to formula tab, select financials then select "Effect" Effect 2 times per year you can see by compounding 2x per year the effective is higher than the YTM
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Q5-3
BrainSoft has 12% coupon bonds on the market with 9 years to maturity. The bonds make semiannual payments and currently sell for 110% of par.
What is the current yield on the bonds? se text p.635
curent yield is the coupon payment annual divided by the current price.
curernt price = 110%*1000
coupon payment per year:
The yield to maturity?
n
PV
$
FV
$
PMT $
rate
The effective annual yield?
See text p. 636 & 151
1,000
Quoated rate =
m=
12% times the par value of $1,000
semi annually
18
$
#NUM! rate is yield to maturity us formula tab, select financial then rate functions.
since this is semi-annual rate, recall we used semiannual n and pmt, we need to multiple by 2 #NUM!
#NUM!
formula is
the good news is that our formula tab has a macro to calculate ear!
3. Interest rates can be quoted in a variety of ways. For financial decisions, it is
important that any rates being compared first be converted to effective rates. The
relationship between a quoted rate, such as an annual percentage rate, or APR, and an
effective annual rate, or EAR, is given by:
EAR= (1 + Quoted rate/m) – 1
where m is the number of times during the year the money is compounded, or, equiva-
lently, the number of payments during the year.
EAR
go to formula tab, select financials then select "Effect"
Effect
2 times per year
you can see by compounding 2x per year the effective is higher than the YTM
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