   Chapter 7, Problem 2P Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

Solutions

Chapter
Section Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

YIELD TO MATURITY AND FUTURE PRICE A bond has a $1,000 par value, 10 years to maturity, and a 7% annual coupon and sells for$985. a. What Is its yield to maturity (YTM)? b. Assume that the yield to maturity remains constant for the next 3 years. What will the price be 3 years from today?

a.

Summary Introduction

To determine: Yield to maturity (YTM).

Yield to Maturity: Yield to maturity refers to the rate of interest earned till the maturity of the bond by the bond holder.

Explanation

Given,

Coupon rate is 7%.

Selling price (value of bond) is $985. Par value of bond is$1,000.

Maturity is after 10 years.

Yield to maturity (YTM) can be calculated through value of bond.

Formula to calculate present value of bond,

Bond'svalue=t=1NINT(1+rd)

(b)

Summary Introduction

To identify: Price of bond after 3 years.

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