Question

Assume that the yield to maturity remains constant for the next 3 years. What will the price be 3 years from today? Do not round intermediate calculations. Round your answer to the nearest cent. $

Answer 1

7.18% and $951.85

Step-by-step explanation:

For computing the present value, first we have to compute the ytm which is shown in the attachment below:

Given that

NPER = 8 years

PMT = $1,000 × 6% = $60

Present value = $930

Future value = $1,000

The formula is shown below:

= Rate(NPER;PMT;-PV;FV;type)

The present value come in negative

So, after solving this, the yield to maturity is 7.18%

Now the present value is

Future value = $1,000

Rate of interest = 7.18%

NPER = 8 years - 3 years = 5 years

PMT = $1,000 × 6% = $60

The formula is shown below:

= -PV(Rate;NPER;PMT;FV;type)

So, after solving this, the present value is $951.85