Consider an 8.5% coupon bond selling for $973.40 with 3 years until maturity mak
ID: 2642884 • Letter: C
Question
Consider an 8.5% coupon bond selling for $973.40 with 3 years until maturity making annual coupon payments. The interest rates in the next 3 years will be, with certainty, r1 = 8%, r2 = 10%, and r3 = 11%. Calculate the yield to maturity and realized compound yield of the bond. (Round your answers to 2 decimal places. Omit the "%" sign in your response.)
Consider an 8.5% coupon bond selling for $973.40 with 3 years until maturity making annual coupon payments. The interest rates in the next 3 years will be, with certainty, r1 = 8%, r2 = 10%, and r3 = 11%. Calculate the yield to maturity and realized compound yield of the bond. (Round your answers to 2 decimal places. Omit the "%" sign in your response.)
Explanation / Answer
Formula,
c(1 + r)-1 + c(1 + r)-2 + . . . + c(1 + r)-Y + B(1 + r)-Y = P
where
c = annual coupon payment (in dollars, not a percent)
Y = number of years to maturity
B = par value
P = purchase price