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Yield to maturity calculations for bonds

What is the yield to maturity on a 10 year, 9 percent annual coupon, $1,000 par value bond that sells for $887.00? That sells for $1,134.20? What does the fact that a bond sells at a discount or premium tell you about the relationship between rd and the bond's coupon rate?

What is the current yield, the capital gains yield, and the total return in each case in the preceding question?

If the bond in part is callable in five years at a call price equal to $1,090.00, what is the yield to call (YTC) on the bond if its market value is $887.00? What is the YTC on the same bond if its current market price is $1,134.20?

What is interest rate price risk? Which bond has more interest rate reinvestment rate risk, assuming a 10 year investment horizon?

Solution Preview

See attached file which includes a graph.

f. (1.) What is the yield to maturity on a 10-year, 9 percent annual coupon, $1,000 par value bond that sells for $887.00? That sells for $1,134.20? What does the fact that a bond sells at a discount or at a premium tell you about the relationship between rd and the bond's coupon rate? What is the yield-to-maturity of the bond?

Use the Rate function to solve the problem.

Years to Mat: 10
Coupon rate: 9%
Annual Pmt: $90.00 Going rate, r =YTM: 10.91% See RATE function at right.
Current price: $887.00
Par value = FV: $1,000.00

(2.) What are the total return, the current yield, and the capital gains yield for the discount bond? (Assume the bond is held to maturity and the company does not default on the bond.)

Current and Capital Gains Yields
The current yield is the annual ...

Solution Summary

Calculating yield to maturity for bonds.

$2.19