EBK CFIN
6th Edition
ISBN: 9781337671743
Author: BESLEY
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 6, Problem 15PROB
Summary Introduction
The bond has a maturity value of $1,000 and coupon rate of 7%. The bond was selling for $996 one year ago and today it Is selling for $1006.
Yield to maturity (YTM) of a bond is the required
YTM calculation is a trial and error process, however, we can calculate YTM using a financial calculator as follows:
INT = PMT = coupon amount
FV = M = maturity value
PV = Price of the bond (input as a negative value)
N = number of periods
Current yield is the annual income on the bond relative to the current price of the bond. It is calculated as the coupon divided by the price of the bond.
Value of a bond keeps changing depending on the prevailing interest rates. As the interest rate increases, the value of the bond decreases on the contrary as the interest rate decreases, price of the bond increases.
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