8. (5 points) A bond is selling for $919. The coupon rate is 7.8%. It has 18-years till maturity, with semi-annual compo

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8 5 Points A Bond Is Selling For 919 The Coupon Rate Is 7 8 It Has 18 Years Till Maturity With Semi Annual Compo 1 (125.73 KiB) Viewed 20 times

8. (5 points) A bond is selling for $919. The coupon rate is 7.8%. It has 18-years till maturity, with semi-annual compounding. What is the yield-to-maturity (YTM)? YTM=C+(FV-B)/n/(FV+B)/2 YTM = 39+ (1,000 - 919)/36/(1000 +919)/2 YTM = 39+2.25/959.50 YTM = .043, 4.3 percent Annual YTM = 4.3 * 2 Answer: 8.6 percent 9. (5 points) For the bond in problem 8, what are the capital-gains yield and the current-yield? 10. (10 points) For the bond in problem 8,0 calculate the realized compound yield ("RCY") with a re-investment rate of 9%. What problem does the RCY correct and why is this important? If the investor believes interest rates are going to increase, is this a good bond choice? Think Price/Yield curve.