What is yield to maturity of bond at the time of purchase

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Reference no: EM132841426

Three investors invest in the same 10-year 8% coupon bond. They bought the bond at the same price ($85.503075 for a par value of $100) and at the same time. A is a buy-and-hold investor (hold till maturity), B will sell the bond after four years, and C will sell the bond after seven years.

Problem 1. What is the yield to maturity of this bond at the time of purchase?

Problem 2. After the bond is purchased by the three investors and before the first coupon is received, interest rate go up to 11.4%. Calculate:

i. What is the change in IOI for each investor?

ii. What is the capital gain/loss for each investor?

iii. What is the difference between change in IOI and capital gain/loss for each investor?

Problem 3. What is the Macaulay duration of this bond?

Reference no: EM132841426

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