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(solution) Calculate the yield to maturity on the following bonds. ( LG 3-2 ) a. A 9 percent coupon (paid...


Calculate the yield to maturity on the following bonds. ( LG 3-2 ) a. A 9 percent coupon (paid semiannually) bond, with a $1,000 face value and 15 years remaining to maturity. The bond is selling at $985. b. An 8 percent coupon (paid quarterly) bond, with a $1,000 face value and 10 years remaining to maturity. The bond is selling at $915. c. An 11 percent coupon (paid annually) bond, with a $1,000 face value and 6 years remaining to maturity. The bond is selling at $1,065. ( LG 3-2 ) Bond Valuation Formula Used to Calculate Fair Present Values Most bonds pay a stated coupon rate of interest to the holders of the bonds. These bonds are called coupon bonds. The interest, or coupon, payments per year, INT, are generally constant (are fixed) over the life of the bond. 5 Thus, the fixed interest payment is essentially an annuity paid to the bond holder periodically (normally semiannually) over the life of the bond. Bonds that do not pay coupon interest are called zero-coupon bonds. For these bonds, INT is zero. The face or par value of the bond, on the other hand, is a lump sum payment received by the bond holder when the bond matures. Face value is generally set at $1,000 in the U.S. bond market.  

 

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