You are thinking about diversifying your portfolio into corporate bonds. After conducting a little research, you find an A-rated bond from Ichabod, Inc. with 10 years to maturity. The bond pays an $80 annual coupon and is selling for $1070.24, implying a 7.00% yield to maturity. You also notice that the bond's price fluctuates considerably, so you begin estimating the minimum price at which you might acquire several of these bonds.
a.) What is the bond's yield if you buy it for $1000?
b.) Explain why the bond's YTM at a price of $1000 differed from its YTM of 7.00% at a price of $1070.24.

  • CreatedAugust 07, 2015
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