An investor purchases a bond in 2005 for $1,150 with 10 years to maturity.

An investor purchases a bond in 2005 for $1,150 with 10 years to maturity. The par value is $1,000. The annual coupon rate is 12 percent and coupon payments are made semi-annually. Assuming semi-annual compounding, what is the annual yield-to-maturity on the bond?

Group of answer choices

a. 2.24 %

b. 4.82%

c. 6.06 %

d. 9.63 %

Solutions

Expert Solution

Face Value of Bond = $1000

Semi-annual coupon payments = $1000*12%*1/2

= $60

No of coupon Payments = No of years to maturity*2

=10 years*2

= 20

Current Price = $1150

Calculating Semi-annual Yield to maturity(YTM) using Excel rate function:-

Semi-annual YTM = 4.8152%

Annual YTM = 4.8152%*2

Annual YTM = 9.63%

So, the annual yield-to-maturity on the bond is 9.63%

Option D

jeff jeffy answered 2 years ago

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