A five-year bond with a $100 face value provides a coupon of 5%per annum payable...

A five-year bond with a $100 face value provides a coupon of 5% per annum payable semiannually. Its price is $100. What is the bond’s yield?

- please do not use excel. Explain step by step

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Expert Solution

Information provided:

Face value= future value= $100

Current price= present value= $100

Time= 5 years*2 = 10 semi-annual periods

Coupon rate= 5% / 2 = 2.50%

Coupon payment= 0.025*100= $2.50

The yield to maturity is calculated by entering the below in a financial calculator:

FV= 100

PV= -100

N= 10

PMT= 2.50

Press the CPT key and I/y to compute the yield to maturity.

The value obtained is 2.50.

Therefore, the yield to maturity is 2.50%*2 = 5%.

jeff jeffy answered 2 years ago

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