Yield to Maturity (YTM) of Various Maturities

a. The Yield to Maturity (YTM) is the nominal rate of return which investors would realize if they held the bond to maturity and the bond did not default.

1(a) Regular Treasury bonds are purchased at face value in the beginning or an adjusted price prior maturity. And in every period, normally annul or semiannual, investor will receive a coupon as an interest and at the maturity a principal plus coupon.

14. Global Enterprises has just signed a $3 million contract. The contract calls for a payment of $.5 million today, $.9 million one year from today, and $1.6 million two years from today. What is this contract really worth if Global Enterprises can earn 12 percent on its money?

The yield to maturity on a 15-year bond is a true estimate of the cost of 30-year bond

P = F(1 + i)-N where i is 15% as mentioned in the case suggestions and N is 8 as we found above, and F is $1.2375B

∆P/P = –D*(∆y) D* = D/(1 + y) = 7/1.073 = 6.52 ∆P/P = –D*(∆y) = –6.52(–0.09%) = .59% New price = $1,073(1.0059) = $1,079.33 Learning Objective: 11-02 Compute the duration of bonds; and use duration to measure interest rate sensitivity.

Week 8 DQ 4Is the compound interest formula—such as would be used to calculate a car loan—an

For the risk-free rate (rRF) we used the yield for a 20-year treasury bond in 2002:

So, the 20 year corporate bond interest rate associated with the company’s rating is 3.86.

The semi-annual compounded interest rate is 5.2% (a six-month discount rate of 5.2/2 = 2.6%). (15 points)

2. The discount rate for this bond would be 0.70%. I started with an appropriate discount rate to derive my bond purchase price, since I would not purchase a bond without finding out ahead of time what a good price should be.

In the first part of our report, we investigate if a 35 basis points yield spread represents mispricing of two bonds, both with the same maturity but one with a coupon rate of 10.625% and the other 4.25%. Our investigation also determines if the yield spread represents an arbitrage opportunity. In our investigation, we calculate the theoretical yield spread between the two bonds and compare the figure with the observed yield spread. It is cited in the case that the observed yield spread could be due to different liquidity premium for each bond or simply due to different durations. Through our calculations, we discover

From the perspective of the most recent S&P Bond Guide, due to the financial problem in 1994, three-level downgrading was applied to the B Bond yield rate that results in the rating position change in industry average yield into BB by 8.8%. Therefore, the different BB yield and the industry average rate indicated that the investor required a higher return on B bond since it is more risky than that in the previous year. There is a restriction in decision making of buying the B bonds in this

Bonds are investment tools in form of a debt. When the government, corporate bodies, or municipalities want to borrow from the public, they issue bonds. By investing in bonds, you are simply lending your money to the issuer of the bond (government or a corporation) at an interest for a given period of time. Usually bonds have a face value, which is the money being borrowed, the coupon rate which is the interest rate to be paid to the investors and the maturity date, which is the date you get paid the money you invested. Bonds are issued for varying period of time, may be three months, one year or even five years.

4. Consider a bond issued at par. The annual coupon is 8 percent and frequency of coupon is semiannual. How would the YTM of this bond be reported in most of the European markets?