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You have funds that you want to invest in bonds, and you just noticed in the financial pages of the local newspaper that you can
You have funds that you want to invest in bonds, and you just noticed in the financial pages of the local newspaper that you can buy a $1,000 par value bond for $700. The coupon rate is 10% (with annual payments), and there are 10 years before the bond will mature and pay off its $1,000 par value. A How much is each coupon payment? B. What does selling at a discount mean? C. Do you expect the yield to maturity (YTM) be higher or lower than the coupon rate of 10% (give an answer based on relationship between par value and bond price) D. Use the online calculator and calculate the YTM E. Now take different bond prices and calculate the corresponding YTMs. If price is $800, how much is its YTM? Does it show a positive or negative relationship between the price and YTM? er
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