ccra bond chapter

agarwalla.harsha
Posts: 7
Joined: Tue Jul 14, 2015 6:55 am

ccra bond chapter

Postby agarwalla.harsha » Mon Sep 28, 2015 7:43 am

sir i did not understand the concepts of ytm, ptm, yield to call.

a) a 10 year 7% treasury bond current market price is $840. the par value payable at maturity is $1000. which of the following is closest to the reinvestment income that must be generated over the life of the bond to provide the investor with a yield equal to the ytm on a semianual basis.

b) the present value of a 4 year $1000 par value bond with a coupon rate of 6% with annual payment, with ytm of 5.1% is closest to???

edupristine
Finance Junkie
Posts: 722
Joined: Wed Apr 09, 2014 6:28 am

Re: ccra bond chapter

Postby edupristine » Wed Sep 30, 2015 12:28 pm

Yield to maturity: It is the return which we get on holding the bond until maturity.
It is not clear that whether it is ptm or pmt?
Yield to call: 1st of all, Call date is a date on which you can redeem your bond return before the maturity date. So, Yield to call is the rate of return which you will receive on a callable bond (bought at market price) and held it until the call date.

a) A 10 year 7% Treasury bond current market price is $840. The par value payable at maturity is $1000. Which of the following is closest to the reinvestment income that must be generated over the life of the bond to provide the investor with a yield equal to the ytm on a semi-annual basis.

ytm on calculator will be=
PV= -840
FV= 1000
pmt= 35
N= 20 (10*2)
Answer would be 4.75
ytm= 4.75* 2 = 9.5
Money generated over the period of 10 years = (840)*(1.047576)^20 = 2128.09

Cash Component = (35*20) + 1000 = 1700
Reinvestment income= 2128.09 - 1700
=$428.09

b) The present value of a 4 year $1000 par value bond with a coupon rate of 6% with annual payment, with ytm of 5.1% is closest to???

= 60(1 + 0.051)^(-1) + 60(1 + 0.051)^(-2) + 60(1 + 0.051)^(-3) + 60(1 + 0.051)^(-4) + 1000(1 + 0.051)^(-4)
= $1031.839


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