Suppose a ten-year, $1,000 bond with an 8.3% coupon rate and semiannual coupons is trading for $1,035.77. a. What is the bond's yield to maturity (expressed as an APR with semiannual compounding)? b. If the bond's yield to maturity changes to 9.8% APR, what will be the bond's price?
Suppose a ten-year, $1,000 bond with an 8.3% coupon rate and semiannual coupons is trading for $1,035.77. a. What is the bond's yield to maturity (expressed as an APR with semiannual compounding)? b. If the bond's yield to maturity changes to 9.8% APR, what will be the bond's price?
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
Suppose a ten-year,
$1,000
bond with an
8.3%
coupon rate and semiannual coupons is trading for
$1,035.77.
a. What is the bond's yield to maturity (expressed as an APR with semiannual compounding)?
b. If the bond's yield to maturity changes to
bond's price ?
9.8%
APR, what will be the Expert Solution
Step 1
The yield to maturity (YTM) of a bond is the rate of return an investor would receive if they held the bond until it matures, assuming that all coupon payments and the face value of the bond are received on time. The yield to maturity is often used to compare the relative value of different bonds and to determine the bond's expected return.
The Annual Percentage Rate (APR) is the annualized interest rate that you are charged on a loan or credit card, which takes into account the interest rate, any points, mortgage broker fees, and most closing costs.
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