## Solutions to bond yield practice problems

1. Suppose a bond has a price today of \$800, a coupon rate of 4%, and six years remaining to maturity. If interest is paid semi-annually, what is this bond's yield to maturity?
• PV=\$800
• CF=\$20 every six months
• N=6 x 2 = 12 six month periods
• FV=\$1,000 (assumed)
• Calculate or estimate from tables: i=4.15
• Yield to maturity = 8.3%

2. Suppose a bond has a price today of \$800, a coupon rate of 4%, and six years remaining to maturity. If interst is paid annually, what is this bond's yield to maturity?
• PV=800
• CF=\$40
• N=6
• FV=\$1,000 (assumed)
• Calculate or estimate from tables: i=8.38%
• Yield to maturity = 8.38%

3. The 6% coupon rate ABC bond has a price of \$1,050, interest paid semi-annually, and two years remaining to maturity. What is the ABC bond's yield to maturity?
• PV=\$1,050
• CF=\$30
• N=4
• FV=\$1,000 (assumed)
• Calculate or estimate from tables: i=1.7%
• Yield to maturity = 3.39%

4. Suppose a bond has a price today of \$1,000, a coupon rate of 5% and size years remaining to maturity. If interest is paid annually, what is this bond's yield to maturity?
• Since the bond is selling at its face value, the coupon rate and the yield to maturity are the same. No calculations necessary.
• Yield to maturity = 5%