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Valuing Bonds-Bond Yields, Price of bonds, Bond returns

How do I calculate Bond Yields: An AT&T bond has 10 years until maturity, a coupon rate of 8 percent, and sells for $1,000?

a.What is the current yield on the bond?
b.What is the yield to maturity?

And in BOND RETURNS how do I calculate the following:

a. If the AT&T bond in the above problem has a yield to maturity of 8 percent 1 year from now, what will its price be?

b. What will be the rate of return on the bond?

c. If the inflation rate during the year is 3 percent, what is the real rate of return on the bond?

And in BOND PRICING how do I compute the following:
A General Motors bond carries a coupon rate of 8 percent, has 9 years until maturity, and sells at a yield to maturity of 7 percent

a. What interest payments do bondholders receive each year?
b. At what price does the bond sell? (Assume annual interest payments)
c. What will happen to the bond price if the yield to maturity falls to 6 percent?

Can you help me with the definitions on the terms like Yield to maturity and abbreviation?

Solution Preview

How do I calculate Bond Yields: An AT&T bond has 10 years until maturity, a coupon rate of 8 percent, and sells for $1,000?

a.What is the current yield on the bond?
b.What is the yield to maturity?

Coupon rate= 8%
Interest payment= $80.00 =8%*1000
Price= $1,000
Therefore yield= 8% =80/1000

Since the bond is selling at the par value of $1000 the yield to maturity = Coupon rate= 8%
(If the bond sells at below par then the yield to maturity is more than the coupon rate;
If the bond sells at above par then the yield to maturity is less than the coupon rate)

And in BOND RETURNS how do I calculate the following:

a. If the AT&T bond in the above problem has a yield to maturity of 8 percent 1 year from ...

Solution Summary

The solution calculates Bond Yields ( current yield, yield to maturity), Bond returns and Price of bonds

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