Bond Valuation using a Financial Calculator

flupsie

New member
I have a problem below as well as a solution which I attempted. It would be appreciated if you would check & advise if there are any corrections

a 10 year, 12 % semiannual coupon bond , with a par value of $1000, may be called in 4 years at a call price of $ 1060. The bond sellls for $ 1100 (assume bond has just been issued

a) what is the bonds yield to maturity?
b) What is the bonds current yield?
c) What is the bonds Capital gain or loss yield?
d) What is the bonds yield to call?

a) Using a Financial Calculator the following steps need to be field to compute the Yield to Maturity

N = 10 x 2 = 20
Pmt = (1000 x 0.12)/2 = 60
PV -1100
FV = 1100

Compute I = 5.18

b) The current yield is calculated as follows:
Current Yield = PMT/PV
To compute the PV using a financial calculator the following steps are followed
N = 20
I = 6
PMT = 60
FV = 1000
Compute PV = -1000
Therefore current yield = 60/1000 = 6%
c) Yield Gain/Loss = Yield to Maturity – Current Yield = 5.18% -6% = -0.82%

d) Yield to call using a Financial Calculator is calculated as follows:

N = 6
Pmt = 60
FV = 1060
PV =-1000
Compute I = 6.84%
 

rosemarry2

MP Guru
I have a problem below as well as a solution which I attempted. It would be appreciated if you would check & advise if there are any corrections

a 10 year, 12 % semiannual coupon bond , with a par value of $1000, may be called in 4 years at a call price of $ 1060. The bond sellls for $ 1100 (assume bond has just been issued

a) what is the bonds yield to maturity?
b) What is the bonds current yield?
c) What is the bonds Capital gain or loss yield?
d) What is the bonds yield to call?

a) Using a Financial Calculator the following steps need to be field to compute the Yield to Maturity

N = 10 x 2 = 20
Pmt = (1000 x 0.12)/2 = 60
PV -1100
FV = 1100

Compute I = 5.18

b) The current yield is calculated as follows:
Current Yield = PMT/PV
To compute the PV using a financial calculator the following steps are followed
N = 20
I = 6
PMT = 60
FV = 1000
Compute PV = -1000
Therefore current yield = 60/1000 = 6%
c) Yield Gain/Loss = Yield to Maturity – Current Yield = 5.18% -6% = -0.82%

d) Yield to call using a Financial Calculator is calculated as follows:

N = 6
Pmt = 60
FV = 1060
PV =-1000
Compute I = 6.84%

Hey Buddy,

Here i am sharing Notes on Interest Rates and Bond Valuation, so please download and check it.
 

Attachments

  • Notes on Interest Rates and Bond Valuation.pdf
    74.3 KB · Views: 0
Top