a) What are the assumptions underlying the yield to maturity (YTM) of a bond? b) Outline and illustrate the types of yields that can be earned by issuers of bonds. c) Assume that a $10 000 par value...

a) What are the assumptions underlying the yield to maturity (YTM) of a bond?

b) Outline and illustrate the types of yields that can be earned by issuers of bonds.

c) Assume that a $10 000 par value bond with 4 years to maturity pays coupons of 10% once every year and is currently selling for $9 600 on the market. Calculate its YTM based on the (i) algebraic relationship;(ii) interpolation; and (iii) estimation formulae or approaches using two estimated discount rates, namely 10% and 12% where appropriate.