Homework SourseConsider a bond with a 6 annual coupon and a face value of 9
Consider a bond with a
6%
annual coupon and a face value of
$900.
Complete the following table. (Enter your responses rounded to two decimal places.)
Years to Maturity
Yield to Maturity
Current Price
2
4%
?
2
6%
?
3
6%
?
5
4%
?
5
8%
?
When the yield to maturity is
less than
greater than
equal to
the coupon rate, the bond\'s current price is below its face value. For a given maturity, the bond\'s current price
rises
falls
does not change
as the yield to maturity rises. For a given yield to maturity, a bond\'s value
falls
rises
does not change
as its maturity increases. When the yield to maturity is
equal to
greater than
less than
the couponrate, a bond\'s current price equals its face value regardless of the number of years to maturity.
| Years to Maturity | Yield to Maturity | Current Price |
| 2 | 4% | ? |
| 2 | 6% | ? |
| 3 | 6% | ? |
| 5 | 4% | ? |
| 5 | 8% | ? |
Solution
Formula,
=PV(4%,2,54,900,0) =$933.95
=PV(6%,2,54,900,0) =$900
= PV(6%,3,54,900,0) =$900
= PV(4%,5,54,900,0) = $980.13
= PV(8%,5,54,900,0) = $828.13
When the yield to maturity is greater than the coupon rate, thebond’s current price is below its face value.
For a given maturity, the bond’s current price falls as the yield to maturity rises
For a given yield tomaturity, a bond’s value rises as its maturity increases.
When the yield to maturity is equal to the coupon rate, a bond’s current price equals its face value regardless of the number of years to maturity.
| Years to Maturity | Yield to Maturity | Current Price |
| 2 | 4% | 933.95 |
| 2 | 6% | 900.00 |
| 3 | 6% | 900.00 |
| 5 | 4% | 980.13 |
| 5 | 8% | 828.13 |
