Calculating YTM and price of a bond
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The Pennington Corporation issued a new series of bonds on January 1, 1987. The bonds were sold at par ($1,000), had a 12% coupon, and matured in 30 years on December 31, 2016. Coupon payments are made semiannually.
(on June 30 and December 31)
a. What was the YTM on the date the bonds were issued?
b. What was the price of the bonds on January 1, 1992 (5 years later) assuming that interest rates had fallen to 10%?
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The solution describes the steps to calculate YTM and price of a bond in the given case.
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a. What was the YTM on the date the bonds were issued?
Since bonds were issued at par, it means that YTM was equal to coupon rate i.e. ...
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