1 A government bond is currently selling 1195 and pays 75 pe

1) A government bond is currently selling $1,195 and pays $75 per year in interest for 14 years when it matures. If the redemption value of this bond is $1,000, what is its yield to maturity if purchased today for $1,195? I have this part.

The second part is: 2) Suppose the government bond described in problem 1 is held for 5 years and then the savings institution acquiring the bond decides to sell it at a price of $940. Can you figure out the average annual yield the savings institution will have earned for its five-year investment in the bond? How do I calculate the initial hpy, for the first year?

Solution

1) PV 1195 FV 1000 Coupon, PMT 75 Periods, NPER 14 Yield, RATE 5.47% =RATE(14,75,-1195,1000,,) 2) PV 1195 FV 940 Coupon, PMT 75 Periods, NPER 5 Yield, RATE 2.19% =RATE(5,75,-1195,940,,) So the Average Yield for institution is 2.19%