You have just received an inheritance of $20,000. You wish to invest in fixed income securities such as bonds, which you think are less risky than stocks. After some research, you have narrowed down your choices to the following three fixed income securities: One-year Treasury Bill: Face value of $1000 Yield to maturity of 1.74% Coupon Bond A: Two years to maturity Face value of $1000 Coupon rate of 3%, with semi-annual coupon payments Price multiple of face value = 1.0189 Coupon Bond B: Five years to maturity Face value of $1000 Coupon rate of 3.5%, with annual coupon payments Yield to maturity of 2.51% All yields to maturity are compounded semi-annually.                                                           b. What is the yield to maturity on Coupon Bond A?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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A2 8 b

8. You have just received an inheritance of $20,000. You wish to invest in fixed income securities such as bonds, which you think are less risky than stocks. After some research, you have narrowed down your choices to the following three fixed income securities:

One-year Treasury Bill:

Face value of $1000
Yield to maturity of 1.74%

Coupon Bond A:

Two years to maturity
Face value of $1000
Coupon rate of 3%, with semi-annual coupon payments
Price multiple of face value = 1.0189

Coupon Bond B:

Five years to maturity
Face value of $1000
Coupon rate of 3.5%, with annual coupon payments
Yield to maturity of 2.51%

All yields to maturity are compounded semi-annually.                                                          

b. What is the yield to maturity on Coupon Bond A?

 

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