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from where did we get interest rate 7% and 9% ???? thanks Example: . A bond with a coupon rate of 5%, has a face
from where did we get interest rate 7% and 9% ????
thanks
Example: . A bond with a coupon rate of 5%, has a face value of $100. The market price of a bond currently is $91. What is the YTM, if the bond has 4 years to maturity? is = $91 The market price of a bond (BV) Coupon rate =5% Coupon value =5% x $100 = $5 = $100 Years to maturity=4, face value 4 years,7% interest rate PVIFA = 3.3872 and 4 years, 7% interest rate PVIF= 0.7629 BV = 5 (3.3872) + 100* (0.7629) = $93.22 4 years, 9% interest rate PVIFA 3.2394 and 4 years,9% interest rate PVIF=0.7084 BV = 5 (3.2397) + 100* (0.7084) = $87.03 Interpolation: nterpolation: Step 1: Absolute difference: 93.22- 87.03 = 6.19 Step 2: difference between upper value and market price of bond: 93.22 - 91=2.22 Step 3: Step 2/ Step 1: 2.22/6.19 = 0.3586 Step 4: Add the result of Step 3 to the lower interest rate:7%+0.3586% = 7.36% YTM = 7.36%
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