Consider an 8-year, 4% quarterly coupon bond with $1,000 face value trading at $922. Which formula below can be used to compute this bond's YTM?
Consider an 8-year, 4% quarterly coupon bond with $1,000 face value trading at $922. Which formula below can be used to compute this bond's 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:Consider an 8-year, 4% quarterly coupon bond with $1,000 face value trading at $922. Which formula below can be used to compute this bond's YTM?
1
1
$1,000
$10
YTM/4
= $922
(YTM/4)(1+ YTM/4)32
(1+ YTM/ 4)32
1
$10
YTM (YTM)(1 + YTM)8
1
$1,000
= $922
(1+ YTM)8
$10
1
1
$922
= $1,000
YTM/ 4
(YTM/ 4)(1+ YTM/ 4)32
(1+ YTM/ 4)32
1
1
$922
$40
YTM/ 4
$1,000
(YTM/ 4)(1+ YTM/ 4)32
(1+ YTM/ 4)32
1
$1,000
$40
= $922
YTM/ 4
(YTM/ 4)(1+ YTM/ 4)32
(1+ YTM/ 4)32
Expert Solution
Step 1
A financial instrument that does not affect the ownership of the common shareholders or management of the company and issue with a fixed cost is term as the bonds.
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