Considera$1,100-par-valuebondwiththefollowingcharacteristics: A current market price of $1,300,

7 years until maturity,

A5 percentcoupon rate(with interest paid annually).

Wewanttodeterminethediscountratethatsetsthepresentvalueofthebond'sexpectedfuture cash-flow stream equal to the bond's current market price (YTM)

• CalculateYield toMaturity(YTM)
• note : I should to have the answer identical to this example, the present value should be at 3.5% and 5% and YTM range between them

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Question-13: To illustrate, consider a $2,700-par-value bond with the following characteristics: A current market price of $1,800, 7 years until maturity, A 8 percent coupon rate (with interest paid annually). We want to determine the discount rate that sets the present value of the bond's expected future cash-flow stream equal to the bond's current market price (YTM) Calculate Yield to Maturity (YTM). Solution: Present Value at 8% [ P=C 1-1/(1+ YTM)t FV YTM (1+YTM)t P=216* (1-(1/ (1+0.08)7)) + 2700 0.08 P=1124.58 + 1575.42 P=2700 Present Value at 18% (1+0.08)7 P C 1-1/(1+ YTM) YTM FV (1+YTM)t P=216* (1-(1/ (1+0.18)7)) + P 823.29847.60 2700 0.18 (1+0.18) P= 1670.89 YTM ranges from 8 to 18% 0.08 2700 X YTM 1800 900 0.10 | | 0.18 1670.89 1029.11 = 900 0.10 1029.11 X (0.10) (900) 1029.11 X=0.0875 YTM 0.08+X = 0.08 +0.0875 = 0.1675, or 16.75 percent. (Solving for YTM by calculator yields 16.75 percent, which in this case is very close to our approximate answer.) YTML+(H-L) (PVL-PVYTM) PVL - PVH YTM 0.08+ (0.18-0.08) (2700-1800) (2700-1670.89) YTM 0.08+0.0875 YTM = 0.1675 YTM = 16.75% Question-13: To illustrate, consider a $2,700-par-value bond with the following characteristics: A current market price of $1,800, 7 years until maturity, A 8 percent coupon rate (with interest paid annually). We want to determine the discount rate that sets the present value of the bond's expected future cash-flow stream equal to the bond's current market price (YTM) Calculate Yield to Maturity (YTM). Solution: Present Value at 8% [ P=C 1-1/(1+ YTM)t FV YTM (1+YTM)t P=216* (1-(1/ (1+0.08)7)) + 2700 0.08 P=1124.58 + 1575.42 P=2700 Present Value at 18% (1+0.08)7 P C 1-1/(1+ YTM) YTM FV (1+YTM)t P=216* (1-(1/ (1+0.18)7)) + P 823.29847.60 2700 0.18 (1+0.18) P= 1670.89 YTM ranges from 8 to 18% 0.08 2700 X YTM 1800 900 0.10 | | 0.18 1670.89 1029.11 = 900 0.10 1029.11 X (0.10) (900) 1029.11 X=0.0875 YTM 0.08+X = 0.08 +0.0875 = 0.1675, or 16.75 percent. (Solving for YTM by calculator yields 16.75 percent, which in this case is very close to our approximate answer.) YTML+(H-L) (PVL-PVYTM) PVL - PVH YTM 0.08+ (0.18-0.08) (2700-1800) (2700-1670.89) YTM 0.08+0.0875 YTM = 0.1675 YTM = 16.75%

Answer rating: 100% (QA)

Calculating Yield to Maturity YTM for the Bond Given Par value 1100 Current market price 1300 Time t... View the full answer