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Calculating Current Price and YTM

1). CR Inc. has 7% coupon bonds with 10 years to maturity. The bond requires annual coupon payments. The face value is $1,000.

Calculate the current price of the bond if the yield to maturity is 9%. (work this problem using Excel spread sheet also)

2). Neuralware Company has issued 12% coupon bonds with $1,000 face value. The bond pays semi-annual coupon payments. It has 5 years to maturity. If the bonds are selling for $1,100, calculate the yield to maturity of the bonds.

Please show all calculations by hand as well as show how they could be calculated using excel.

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Solution Preview

Please refer attached MS Excel file for calculations carried out with the help of MS Excel.

Solution:

1). CR Inc. has 7% coupon bonds with 10 years to maturity. The bond requires annual coupon payments. The face value is $1,000.

Calculate the current price of the bond if the yield to maturity is 9%. (work this problem using Excel spread sheet also)

Number of coupon payments=n=10
Coupon payment=C=1000*7%=$70
Price of bond=?
Maturity amount=Face value=$1000
Discount rate=YTM=r=9%
Price of bond= C/r(1-1/(1+r)^n)+M/(1+r)^n
...

Solution Summary

Solutions depict the methodology to calculate current price and YTM.

$2.19