Bond Pricing and Yield Solution Strictly Confidential

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Bond Pricing and Yield Solution
Question 1
a) What is the price of a 4 year annual bond paying a 5% coupon and having a YTM of 7%?
b) What is the current yield of the bond?

Question 2
a) What is the price of a 5 year semi annual bond paying a 5% coupon and having a YTM of 4%?
b) What is the current yield of the bond?

Solution

1) Par 100 2) Par 100

Coupon 5% Coupon 5%
YTM 7% YTM 4%

Time FV DF PV Time FV DF
1 $5.00 0.9346 $4.67 1 $2.50 0.9804
2 $5.00 0.8734 $4.37 2 $2.50 0.9612
3 $5.00 0.8163 $4.08 3 $2.50 0.9423
4 $105.00 0.7629 $80.10 4 $2.50 0.9238
$93.23 5 $2.50 0.9057
6 $2.50 0.8880
Current yield 5.36% 7 $2.50 0.8706
8 $2.50 0.8535
9 $2.50 0.8368
10 $102.50 0.8203

Current yield
 PV
$2.45
$2.40
$2.36
$2.31
$2.26
$2.22
$2.18
$2.13
$2.09
$84.09
$104.49

4.79%