Question

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jack Wong purchased a five-year bond today at $991.62. The bond pays 6.5 percent semi-annually. What...

jack Wong purchased a five-year bond today at $991.62. The bond pays 6.5 percent semi-annually. What will be the yield to maturity?

	a.	5.2%
	b.	6.7%
	c.	5.7%
	d.	6.1%
	e.	5.0%

Expert Solution

Ans) b.6.7%

YTM = Interest +(Face value -current market price/n) / (Face value + current market price/2)

Face value = $1000

Interest = 1000 x 6.5% x 1/2

= 32.5 $

Current Market price = $ 991.62

n = no of coupon payments = 5 x 2 = 10

YTM = 32.5 + (1000-991.62)/10 / (1000+991.62)/2

= 32.5 + (8.38/10) / (1991.62/2)

= 32.5 + 0.838 / 995.81

= 33.338 / 995.81

= 0.03348

i.e 3.348%

Thus annual rate = 3.348 x 2 = 6.69%

i.e 6.7%

jeff jeffy answered 2 years ago

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