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Can someone please post a more in depth analysis of the answers to this question with the formula being used each time? yield to maturity
Can someone please post a more in depth analysis of the answers to this question with the formula being used each time?
yield to maturity is 7%. Par value is $1000. Q3-a. What is the bond price today? Answer: \$1105.94. In financial calculator, N=20,I/Y=7,PMT=80,FV=1000. CPT PV. (continued) Q3-b. What would the bond price be today if it paid out semiannually? Answer: $1106.78. In financial calculator, N=40,1/Y=3.5,PMT=40,FV=1000. CPT PV. (continued) Q3-c. You spent the price in Q3-a to buy the bond and the bond pays out annually. One year later, right after you receive the first coupon, you decide to sell the bond. The YTM at that moment is 7.5\%. What is your holding period return? (Return is in the unit of percentage. For example, suppose your answer is 1%, then you should write down 1 . Round your answer to the 2nd decimal point if necessary.). Answer: Selling Price =1049.80. In financial calculator, N=19,1/Y=7.5,PMT=80,FV=1000. CPT PV. Return =(1049.80+801105.94)/1105.94=2.16%. (continued) Q3-d. You spent the price in Q3-a to buy the bond. Assuming that (i) you sell the bond after two years, (ii) the bond yield is 7.5% at the end of the second year, and (iii) the coupon can be reinvested for one year at a 5% interest rate. What is your realized compound return? (Return is in the unit of percentage. For example, suppose your answer is 1%, then you should write down 1. Round your answer to the 2nd decimal point if necessary.). Answer: Selling Price =1048.53. In financial calculator, N=18,1/Y=7.5,PMT=80,FV=1000. CPT PV. FV of all coupons 164=80+801.05 Solving $1105.94(1+r)2=(1048.53+164) generates r=4.71%
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