Find the yield to maturity of a par $10,000 bond selling at $9,800 with semiannual coupon...

Find the yield to maturity of a par $10,000 bond selling at $9,800 with semiannual coupon payments equal to $280 and maturing in 8years. State the formula and substitute the figures in to the formula to derive the correct answer if possible?

Solutions

Expert Solution

Long-hand formula (which will give approximate result for yield to maturity rate)

Yield to maturity = 2 x ((Coupon + (Face value - Current price) / Number of payment terms) / ((Face value + Current price) / 2)

Yield to maturity = 2 x ((C + (F - P) / n) / ((F + P) / 2)

Yield to Maturity = 2 x ((280 + (10000 - 9800) / 16) / ((10000 + 9800) / 2))

Yield to Maturity = 5.91%

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Solving by financial calculator:

Using financial calculator BA II Plus - Input details:	#
FV = Future Value / Face Value =	-$10,000.00
PV = Present Value =	$9,800.00
N = Number of years remaining x frequency =	16
PMT = Payment = Coupon / frequency =	-$280.00
CPT > I/Y = Rate per period or YTM per period =	2.958720
*Convert Yield in annual and percentage form = Yieldfrequency / 100 =**	5.92%

jeff jeffy answered 1 year ago

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