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Chapter 2 Securities Markets and Transactions 15
Solutions to Problems
11.1 Calculator solution is:
11.2 Bond prices using annual compounding:
a. N = 15
b. N = 20
The first bond has the lower price. No calculations are really necessary for this problem because
©2017 Pearson Education, Inc.
16 Smart/Gitman/Joehnk • Fundamentals of Investing, Thirteenth Edition
11.3 a. Semiannual compounding Annual compounding
b. Semiannual compounding Annual compounding
c. Semiannual compounding Annual compounding
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Chapter 2 Securities Markets and Transactions 17
Semiannual compounding results in a slightly lower price if the bond is discounted and a slightly
higher price if the bond is selling at a premium.
11.4 Annual compounding
11.5 Semiannual compounding
11.6 Annual compounding
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18 Smart/Gitman/Joehnk • Fundamentals of Investing, Thirteenth Edition
11.7 N=6
11.9 N = 14
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Chapter 2 Securities Markets and Transactions 19
yield-to-maturity/bond equivaent yield = 3.746× 2 = 7.492%
11.10 Current yield
Annual interest income
Current market price of bond
=
Annual interest income = (54.18 × 2)/937 = 11.565%
11.11 Price today Price in one year
11.12 Promised Yield
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20 Smart/Gitman/Joehnk • Fundamentals of Investing, Thirteenth Edition
11.13 Yield to Maturity
11.14 Current yield = 100/1200= 8.33%
Promised yield,
annual compounding
Promised yield,
semiannual compounding
©2017 Pearson Education, Inc.
Chapter 2 Securities Markets and Transactions 21
11.15 N = 100
11.16 a. Yield to Maturity Yield to Call
b. Yield to Maturity Yield to Call
The current yield and YTC are relatively meaningless. The bond will not be called when its
©2017 Pearson Education, Inc.
22 Smart/Gitman/Joehnk • Fundamentals of Investing, Thirteenth Edition
11.17 A. Price Yield to Call
B. Price Yield to Call
11.18 Promised Yield
©2017 Pearson Education, Inc.
Chapter 2 Securities Markets and Transactions 23
11.19 Price
11.20 Yield to Maturity
Here we solve for the YTM/promised assuming semiannual compounding and a current market price
of $116.25.
=rate(50,0,-116,25,1000) and then multiply times 2.
On a cash flow basis, the current yield is 0/$116.25 = 0%. On an accrual basis, current yield is the
Price with YTM of 12%
©2017 Pearson Education, Inc.
