Bond out standig with an $85 annual intrest payment market price $800 and maturity date is 5 years find
coupon rate
currnt rate
aproximate yield to maturity
To find the coupon rate, current rate, and approximate yield to maturity of a bond, we need to use some formulas and take into account the given information.
1. Coupon Rate:
The coupon rate is the annual interest payment expressed as a percentage of the bond's face value. In this case, the annual interest payment is given as $85, so we can calculate the coupon rate using the formula:
Coupon Rate = (Annual Interest Payment / Face Value of Bond) * 100
Given:
- Annual Interest Payment = $85
- Market Price = $800
To find the face value of the bond, we need to divide the market price by the present value factor for the bond's maturity. However, the present value factor is not given, so we need more information to proceed.
2. Current Rate:
The current rate is the yield (interest rate) on similar bonds currently available in the market. The value of the current rate is not provided, so we cannot determine it directly from the given information.
3. Approximate Yield to Maturity:
The yield to maturity (YTM) is the total return anticipated on a bond if held until it matures. It takes into account the bond's current market price, coupon rate, and time to maturity. To calculate an approximate yield to maturity, we can use the trial-and-error method or utilize financial calculators or spreadsheet functions.
Given:
- Market Price = $800
- Maturity Date = 5 years
Using a financial calculator or spreadsheet function, we can find the approximate yield to maturity (YTM) by determining the interest rate that would make the present value of the bond's future cash flows (coupon payments and face value) equal to the market price of $800. The calculation involves trial and error or iterative methods.
Please note that without the face value or the present value factor, it's not possible to determine the coupon rate or the yield to maturity with the given information.