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Answer:
The question is not correct in its entirety,find below correct question:
A bond's market price is $900. It has a $1,000 par value, will mature in 14 years, and has a coupon interest rate of 11 percent annual interest, but makes its interest payments semiannually. What is the bond's yield to maturity? What happens to the bond's yield to maturity if the bond matures in 28 years? What if it matures in 7 years? (Round to two decimal places.)
The bond's yield to maturity if it matures in 14 years is % 12.53%
The bond's yield to maturity if it matures in 28 years is %
The bond's yield to maturity if it matures in 7 years is %
12.53%
12.28%
13.23%
Explanation:
In calculating the bond yield to maturity, the rate formula in excel comes handy:
=rate(nper,pmt,-pv,fv)
nper is the number of periods coupon would be paid
for 14 years it is 14*2=28(coupon is paid twice a year),56 for 28 years and 14 for 7 years
pmt is periodic coupon payment semi-annually, which 11%*$1000*6/12=$55
pv is the current market price of $900
fv is the redemption price of $1000
YTM for 14 years=rate(28,55,-900,1000)
=6.27% semi-annually
=6.27% *2=12.53% annually
YTM for 28 years=rate(56,55,-900,1000)
=6.14% semi-annually
=6.14% *2=12.28% annually
YTM for 7 years=rate(14,55,-900,1000)
=6.62% semi-annually
=6.62% *2=13.23% annually
