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The market price is ​$1,075 for a 19​-year bond ​($1,000 par​ value) that pays 11 percent...

The market price is ​$1,075 for a 19​-year bond ​($1,000 par​ value) that pays 11 percent annual​ interest, but makes interest payments on a semiannual basis ​(5.5 percent​ semiannually). What is the​ bond's yield to​ maturity?

Solutions

Expert Solution

he yield to maturity of the bond can be calculated with the help of RATE function of Excel

Inputs requied:

N = 19 * 2 = 38

FV = 1000

PMT= 11%/2 * 1000 = 55

PV = 1075

The Rate function is:

=RATE(38,55,-1075,1000,0,0.11)

= 0.0505

The above calculated is the semi annual rate

Annual rate = Semi annual rate * 2

= 0.0505 * 2

= 0.101

Or 10.10%

YTM = 10.10%

jeff jeffy answered 2 years ago
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