Question
In: Finance
A 9.5 percent semiannual coupon bond matures in 7 years. The bond has a face value...
A 9.5 percent semiannual coupon bond matures in 7 years. The bond has a face value of $1,000 and a current yield (CY) of 9.77 percent. What is the bond’s yield to maturity (YTM)?
| a. |
9.77% |
|
| b. |
5.23% |
|
| c. |
10.46% |
|
| d. |
9.50% |
|
| e. |
10.06% |
Solutions
Expert Solution
Current yield = Annual coupon / Bond price
9.77% = (9.50% * 1000) / Bond price
Bond price = 95 / 9.77%
= 972.36
The YTM of the bond can be calculated with the help of Rate function of Excel
Inputs:
PV = 972.36
Coupon (PMT) = 1000 * 9.50%/2 = 47.50
FV = 1000
Nper = 7 * 2 = 14
The Rate function looks as follows in Excel:
=RATE(14,47.5,-972.36,1000,0,0.1)
= 0.0503
The above calculated rate represents semi annual yield
Annual YTM = Semi annual YTM * 2
= 0.0503 * 2 = 0.1006
= 10.06%
Correct choice E
jeff jeffy answered 2 years agoRelated Solutions
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