Transcription of Washington State University
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Washington State University
Page 1 / 7 1. Which of the following $1,000 face-value securities has the lowest yield to maturity? A) a 5 percent coupon bond selling for $1,000 B) a 10 percent coupon bond selling for $1,000 C) a 15 percent coupon bond selling for $1,000 D) a 15 percent coupon bond selling for $900 1. Answer: A Since yield to maturity (YTM) is defined as the interest rate that equates the PV from a debt instrument with its value today, coupon bond (A) s YTM would be 1 $1, 000 , ' 1;1, 000 ( ) 1, 000 , 000501, 0001, ValueFor simplicity let s say nPVCoupon Interest PaymentFace Value Current YieldiiiiiYTMi 5 (B): likewise, 1 $1, 000 , ' 1;1, 000 ( ) 1, 000 100111, 0001001, 0001,1001, 0 0 01 0 011111nnFace ValueFor simplicity let s say nPVCoupon Interest PaymentFace Value Current Yieldiiiii (C) Likewise, 1 $1, 000 , ' 1;1, 000 ( ) 1, 000 150111, 0001501, 0001,1501, 0 0 01 5 011111nnFace ValueFor simplicity
A. How much does Biff pay Al for the bond? B. Calculate Al's current yield, capital-gains yield, and total return for the year. On September 1, 2014, Biff receives a coupon payment of $750. The market interest rate on bonds like his remains 6 percent. Biff sells his bond to Cass at that time, for a price equal to the present value of the
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