Each of the bonds shown in the following table pays interest annually.
Bond A $1,000 Coupon interest rate 9% Years to maturity 8 Current Value $820
Bond B $1,000 Coupon interest rate 12% Years to maturity 16 Current Value $1,000
Bond C $500 Coupon interest rate 12% Years to maturity 12 Current Value $560
Bond D $1,000 Coupon interest rate 15% Years to maturity 10 Current Value $1,120
Bond E $1,000 Coupon interest rate 5% Years to maturity 3 Current Value $900
a. Calculate the yield to maturity (YTM) for each bond.
b. What relationship exists between the coupon interest rate and yield to maturity
and the par value and market value of a bond? Explain.
Answer: Given that,
(i) Bond Value $820
Par value of Bond $1,000
Coupon Rate 9%
Time to maturity 8 years
Yield to maturity 12.71%
(ii) Bond Value $1,000
Par value of ...
This solution shows step-by-step calculations to determine the yield to maturity for the bond and what relationship exists between the coupon interest rate and yield to maturity.