Steel Inc. has 6 percent coupon bond on the market with 10 years to maturity, and the par value of $1,000. The bonds make semi-annual coupon payments and currently sell for $1,102.5. What is the YTM? a. 6.1 percent b. 5.3 percent c. 5.8 percent d. 4.7 percen
Steel Inc. has 6 percent coupon bond on the market with 10 years to maturity, and the par value of $1,000. The bonds make semi-annual coupon payments and currently sell for $1,102.5. What is the YTM? a. 6.1 percent b. 5.3 percent c. 5.8 percent d. 4.7 percen
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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Question
Steel Inc. has 6 percent coupon bond on the market with 10 years to maturity, and the par value of $1,000. The bonds make semi-annual coupon payments and currently sell for $1,102.5. What is the YTM?
| a. |
6.1 percent |
|
| b. |
5.3 percent |
|
| c. |
5.8 percent |
|
| d. |
4.7 percent |
Expert Solution
Step 1
Bond price is the sum of all coupon payments during the life of bond and maturity value on maturity of bond discounted at Yield to maturity
Bond Price = [C1/(1 + YTM)1] + [C2/(1 + YTM)2] + .... + [(Cn + MV)/(1 + YTM)n]
Where, C1 = Coupon for period 1 = 1000*(6%/2) = 30
C2 = Coupon for period 2 = 30
Cn = Coupon for period n = 30
MV = Maturity Value = 1000
YTM = Yield to Maturity
N = time period = 10 years * 2 semi annuals = 20
Bond price = 1,102.5
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