| Course | GF540 Investment and Securities Analysis |
|---|---|
| Unit | Unit 4 |
| Paper type | Bond pricing exercise |
| Length | About 900 words, 6 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | MS in Finance |
| Updated | October 2026 |
Free sample paper for GF540 Unit 4
Four Yields for Three Bonds: A Unit 4 Bond Pricing Exercise From Current Yield to Yield to Worst
[Student Name]
Purdue University Global
GF540: Investment and Securities Analysis
Unit 4 Bond Pricing Exercise
[Instructor Name]
[Date]
The three bonds, their issuers and every price are composite and illustrative; the textbooks cited are real.
Conventions
All three bonds have $1,000 face value. Coupons are paid semiannually, and yields are quoted on a bond-equivalent basis, twice the semiannual rate, unless stated as effective annual rates. Prices are quoted clean, without accrued interest, as is standard for U.S. corporate bonds (Fabozzi, 2016).
Block 1: A Discount Corporate Bond
Term sheet. Coupon 5.4 percent, paid as $27.00 every six months. Eight years, or sixteen periods, to maturity. Comparable bonds yield 6.2 percent.
Price. Discount sixteen payments of $27.00 and the $1,000 face value at 3.1 percent per half-year. The coupons are worth about $336.57 and the face value about $613.57, for a price of about $950.14.
Current yield. The annual coupon of $54.00 divided by the price of $950.14, about 5.68 percent.
Yield to maturity. 6.2 percent by construction, since the bond was priced at that yield.
Meaning. The bond trades below face value because its coupon is below the market rate. Current yield, 5.68 percent, understates the return because it ignores the $49.86 gain the holder collects when the bond matures at face.
Block 2: A Premium Callable Bond
Term sheet. Coupon 6.8 percent, paid as $34.00 every six months. Twelve years, or twenty-four periods, to maturity. Quoted at $1,064.50. Callable in four years, eight periods, at $1,025.
Current yield. $68.00 divided by $1,064.50, about 6.39 percent.
Yield to maturity. Solve for the semiannual rate at which twenty-four payments of $34.00 and $1,000 at maturity are worth $1,064.50 today. Trial rates bracket the answer: at 3.0 percent per half-year the price would be about $1,067.74, slightly too high; at 3.1 percent it would be about $1,050.26, too low. The rate is about 3.018 percent per half-year, a yield to maturity of about 6.04 percent on a bond-equivalent basis and 6.13 percent as an effective annual rate.
Yield to call. Solve for the semiannual rate at which eight payments of $34.00 and the $1,025 call price are worth $1,064.50. The answer is about 2.773 percent per half-year, a yield to call of about 5.55 percent.
Yield to worst. 5.55 percent, since the call date gives the smaller figure.
Meaning. A premium callable bond is likely to be called if rates stay near today's level, because the issuer could refinance a 6.8 percent coupon more cheaply. A buyer should assume the lower yield. Quoting yield to maturity alone would overstate the expected return by about half a point.
Block 3: A Five-Year Zero-Coupon Bond
Term sheet. No coupons. Five years, or ten half-year periods, to maturity. Market yield 5.8 percent.
Price. $1,000 divided by 1.029 raised to the tenth power, about $751.36.
Current yield. Not meaningful, since there is no coupon.
Yield to maturity. 5.8 percent by construction. The entire return comes from the $248.64 difference between price and face value.
Meaning. A zero has no reinvestment risk, since there are no coupons to reinvest, but its price moves more than a coupon bond's of the same maturity when rates change, a point the next unit develops.
The three bonds show why one yield is never enough: the discount bond's current yield understates its return, the premium bond's yield to maturity overstates it, and only the zero's yield to maturity is the return a buyer will actually earn if the bond is held to the end.
Which Yield to Report
For a client comparing these bonds, the right single figure differs by bond. For the discount bond, yield to maturity is the best summary, since it includes the gain at maturity and there is no call. For the premium callable, yield to worst is the conservative figure and the one dealers quote. For the zero, yield to maturity is exact. Reporting current yield alone, as some account statements do, would rank the premium callable highest when it is in fact the lowest-yielding of the three on a realistic basis.
Accrued Interest: Quoted Price Versus Invoice Price
Suppose the discount bond in Block 1 is bought 45 days into a 182-day coupon period at the quoted price of $950.14. The seller has earned part of the next coupon by holding the bond for those 45 days, so the buyer pays it to the seller.
Accrued interest. $27.00 times 45 divided by 182, about $6.68.
Invoice price. $950.14 plus $6.68, about $956.81.
Meaning. The quoted price stays smooth over time because it excludes accrued interest; the invoice price rises steadily through each coupon period and drops when the coupon is paid. Comparing bonds on invoice prices would mix price changes with the timing of coupons (Bodie et al., 2024).
Checks
Each price was verified by computing it a second way. For Block 1, the price falls between the value at 6.0 percent and at 6.4 percent, as it should. For Block 2, pricing the bond at the computed yield to call reproduces $1,064.50. For Block 3, growing $751.36 at 2.9 percent per half-year for ten periods returns $1,000. Yield calculations used a financial calculator, with the trial rates shown so the method can be followed (Reilly et al., 2019).
References
Bodie, Z., Kane, A., & Marcus, A. J. (2024). Investments (13th ed.). McGraw Hill.
Fabozzi, F. J. (2016). Bond markets, analysis, and strategies (9th ed.). Pearson.
Reilly, F. K., Brown, K. C., & Leeds, S. J. (2019). Investment analysis and portfolio management (11th ed.). Cengage.
The Purdue Global GF540 Unit 4 instructions
The fourth GF540 unit asks you to price bonds and report their yields. For each instrument, set out the term sheet, then price it by discounting its coupons and face value at the market yield, using semiannual periods where coupons are semiannual. Give each bond's coupon-to-price yield and its return held to the end, and for callable issues add the return to the first call date and the lower of the two, with trial rates shown wherever you solve. Explain what each measure means and when it misleads. Where a settlement date falls between coupons, compute accrued interest and the invoice price. Recommend which single yield best summarizes each bond for a client. Check each price a second way. State your conventions at the start. Cite a bond markets text and the course text in APA 7.
How the GF 540 Unit 4 example is put together
The conventions come first in the sample: semiannual coupons, bond-equivalent yields and clean quotes, citing Fabozzi. Block 1 splits the discount bond's price into coupons and face value and explains why current yield understates its return. Block 2 brackets the callable's yield to maturity between trial rates, solves the yield to call and names the lower as yield to worst, warning that quoting maturity yield alone overstates return. Block 3 prices the zero and notes it carries no reinvestment risk. The highlighted sentence contrasts what each measure gets wrong. A section on which yield to report ranks the measures for a client. The accrued interest section computes the invoice price and cites Bodie, Kane and Marcus on clean quotes. A checks section verifies each price, citing Reilly and colleagues.
Where the points sit in the GF540 Unit 4 rubric
Credit in this GF540 exercise depends first on correct prices and yields with the working shown, including trial rates or interpolation for yields. Graders check semiannual conventions carefully. The next share rewards explaining each yield measure's meaning and its weakness, especially recognizing when a call makes yield to worst the realistic figure. Accrued interest and the invoice price earn credit when computed correctly and explained. Instructors in the MS in Finance program value a recommendation of which yield to quote for each bond, since that is how the figures would be used. Independent checks distinguish careful work, and APA 7 entries for the bond text and course text complete the marks.
GF540 Unit 4 help from the desk
A common error in GF540 Unit 4 is using annual periods for semiannual coupons, which shifts every price and yield. Students also report yield to maturity for a premium callable bond without considering the call, overstating the likely return. Current yield is presented as if it were total return. Accrued interest is added to the quoted price twice or left out of the invoice. Yields are stated without the trial rates that show how they were found. Zero-coupon bonds are priced with annual compounding when the market convention is semiannual. For any set of bonds your prompt supplies, keep the same steps: term sheet, price, each yield with its meaning, accrued interest where needed, a recommendation and a check.
Get a GF540 Unit 4 example written to your instructions
Your GF540 Unit 4 bond terms, whatever yields or prices were supplied and the rubric are all the exercise needs, plus a note if your instructor wants calculator keystrokes or spreadsheet functions shown. Each instrument is priced and every requested yield reported with its assumption stated. Nothing is billed for a first custom sample, and delivery usually takes 24-48h. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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GF540 Unit 4 questions, answered
Why does my bond have a yield to call and a yield to maturity?
Because a callable bond might be redeemed early, and each yield assumes a different end date. When the bond trades above par, the issuer has reason to call it once rates allow, so the yield to call is usually the realistic figure. The sample reports both and names the lower one as yield to worst, which is the conservative measure most prompts expect you to quote.
Do I need to show accrued interest?
If the prompt gives a settlement date between coupon payments, yes. Bonds are quoted clean, without the interest the seller has earned since the last coupon, and the buyer pays that interest on top. The sample computes it from the day count your prompt specifies and shows the quoted and invoice prices side by side, so there is no doubt about which figure answers the question.
Is the zero-coupon bond just a present value problem?
Mechanically, yes: one payment at maturity discounted at the periodic yield. What earns credit is the interpretation. The sample notes that a zero carries no reinvestment risk before maturity and that its price moves more for a given yield change than a coupon bond of the same maturity, which sets up the duration work that usually follows.
Where can I find a free GF540 Unit 4 sample paper?
This page carries a complete GF540 Unit 4 bond pricing exercise for a discount corporate, a premium callable and a zero, reporting all four yield measures, accrued interest and APA 7 references.
Why is yield to worst the figure to quote for the callable bond?
The bond trades above its call price and pays a coupon above market rates, so the issuer is likely to call it. Yield to call, 5.55 percent, is then the realistic return, and it is lower than yield to maturity.