# bond with 10 years left to maturity

• Mar 18th 2007, 10:41 AM
kcsteven
bond with 10 years left to maturity
This is a two part question, I understood the first part but now I am at a standstill. Here is the question: We are asked what is the price of the bond if the yield is to be 9% per annum compounded annually?
Using the formula given: P = A(1+i)^n
10,000 = A*(1+.09)^15
We solve for A: 10,000/(1+.09)^15 = \$2,745.38
Now the question asks, when the bond has 10 years left to maturity, it is offered for sale at \$3855.43. Estimate the yeild on the bond if it is then purchased and held to maturity. I took the equation 10,000/(1+.09)^5 = 6,499.313863 to see where the bond would be if there was ten years left, but I can't see how this helps me. Please take a look at this and let me know what the next step is.
Thankx,
Keith
• Mar 18th 2007, 12:40 PM
CaptainBlack
Quote:

Originally Posted by kcsteven
This is a two part question, I understood the first part but now I am at a standstill. Here is the question: We are asked what is the price of the bond if the yield is to be 9% per annum compounded annually?
Using the formula given: P = A(1+i)^n
10,000 = A*(1+.09)^15
We solve for A: 10,000/(1+.09)^15 = \$2,745.38
Now the question asks, when the bond has 10 years left to maturity, it is offered for sale at \$3855.43. Estimate the yeild on the bond if it is then purchased and held to maturity. I took the equation 10,000/(1+.09)^5 = 6,499.313863 to see where the bond would be if there was ten years left, but I can't see how this helps me. Please take a look at this and let me know what the next step is.
Thankx,
Keith

With 10 years left and a price of 3855.43, we would have a yeild y, where:

10000 = 3855.43 *(1+y)^10,

or:

y = (10000/3855.43)^{1/10) - 1 ~= 0.099999

or ~ 10%.

RonL