Investment

Given Information

Coupon rate = 6%
Interest payment = Semi-annual (0.5)
Bond Price = $1000
Ask Price = 117%

Explanation on Yield to Maturity as in option ‘b’

Semi-annual coupon payment = Coupon Payment/2
= $1000 x 6% x 0.5= $ 30
Accrued interest = Semi-annual coupon payment / 2 x Days since last coupon payment / Days separating coupon payment
= 30 x 30 /182= $4.945
At a price of 117,
Invoice price = $1170 + $4945= $11, 174.95

152.	A zero-coupon bond with face value $1,000 and maturity of five years sells for $746.22. What is its yield to maturity? What will happen to its yield to maturity if its price falls immediately to $730?
153.	Two bonds have identical times to maturity and coupon rates. One is callable at 105, the other at 110. Which should have the higher yield to maturity? Why? Bond callable at 105 will provide more return than bond callable at 110 to its investors because of its lower price and all other things like time to maturity and coupon rates being the same.
154.	Consider a bond with a 10% coupon and with yield to maturity = 8%. If the bond’s YTM remains constant, then in one year will the bond price be higher, lower, or unchanged? Why? Lower. The value of the bond will decrease in value when yield to maturity is lower than the coupon rate.
155.	A bond with an annual coupon rate of 4.8% sells for $970. What is the bond’s current yield? Given information Annual coupon rate = 4.8% Par value = $1000 Bond Price = $970