Question #177619

Buy a U.S. T-bond for $1,100 that makes annual coupon payments at a rate of 10% until the bond matures 10 years from now, at which time it will pay you $1,000


1
Expert's answer
2021-04-15T07:19:56-0400

trading price=11000

face value=1000

rate=10

time =10 years

annual interest=interest×facevalueinterest\times face value

=10100×1000=\frac{10}{100}\times1000

=100=100

current yield=annualinteresttradingprice=\frac{annual interest}{trading price}

=1001000=0.09091=\frac{100}{1000}=0.09091

=0.09091×100=0.09091\times 100

=9.091=9.091 %

yieldtomaturity=annualinterestpayment+(facevalue/yearstomaturity)facevalue+currentprice/2)yield to maturity=\frac{annual interest payment+(face value/years to maturity)}{face value +current price/2)}

=100(100/2)2100/2=\frac{100-(100/2)}{2100/2}

=901050=\frac{90}{1050}

=0.08571=0.08571

=0.08571×100=0.08571\times 100

=8.571=8.571 %


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