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A $1,000 par value bond has an 8% coupon rate (paid semiannually). It has 5 years...

A $1,000 par value bond has an 8% coupon rate (paid semiannually). It has 5 years remaining to maturity. If bond’s current price $1,085.30, what should be the YTM of this bond?

a. 6%

b. 3.69%

c. 7.37%

d. 3%

Solutions

Expert Solution

What is the Yield to Maturity (YTM)?

Answer: 3%

Working

Formula for calculating Yield To Maturity (YTM)

F (i.e. Face value) = $1000

P (i.e. current price) = 1085.30

N = period = 10 (5 year * 2 (i.e. semiannual coupon payment))

C (i.e. coupon)          = Face value * Coupon Rate

                                    = $1000 * 4%

                                    = $40

(Note: since coupons are paid semiannually so coupon rate will be 4% (i.e. 8% ÷2)

Yield To Maturity (YTM) Calculation

jeff jeffy answered 1 year ago
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