投资学key for chap05.docVIP

4 The yield-to-maturity of a bond is that interest rate that equates the price of the bond to the discounted value of the bonds cash flows. The general form of the bond valuation equation is: a. In the case of the first bond, the yield-to-maturity is found by solving the following equation for Y: $816.30 = $1,000.00/(1+Y)3 (1 + Y)3 = $1,000.00/816.30 (1 + Y) = (1.225)1/3 Y = 1.07 - 1 = .070 = 7.0% b. In the case of the second bond, the yield-to-maturity is found by solving the following equation for Y: Y must be solved for iteratively. Trying 9.0% gives: $949.37 = $64.22 + $58.92 + $54.05 + $772.18 = $949.37 Thus the yield-to-maturity on the second bond is 9.0%. 5. The value of a bond is the sum of the discounted value of its cash flows. In the case of the Camp Douglas bond, with a 12% discount rate: = $89.29 + $79.72 + $71.18 + $699.07 = $939.26 With an 8% discount rate: =$92.59 + $85.73 + $79.38 + $808.53 = $1,066.23 7. The yield-to-maturity of a bond is that interest rate that equates the price of the bond to the discounted value of the bonds cash flows. In the case of Patsys bond, the yield-to-maturity is found by solving the following equation for Y: Y must be solved for iteratively. Trying 10.0% gives: $975.13 = $81.82 + $74.38 + $67.62 + $751.31 = $975.13 Thus the yield-to-maturity on Patsys bond is 10.0%. 8. The N-period spot rate is the interest rate on a pure discount bond whose life extends from today through N future periods. Thus for pure-discount bonds with maturities of one, two, and three years, spot rates for one, two, and three years can be determined. The one-year spot rate can be determined from the price of the one-year pure discount bond. $930.23 = $1,000/(1 + Y)1 (1 + Y)1 = $1,000/$930.23 (1 + Y)1 = 1.075 Y = .075 = 7.5% The two-year spot rate can be determined from the price of the two-year pure discount bond. $923.79 = $1,000/(1 + Y)2