What is the semi-annual coupon bond’s nominal yield to maturity (YTM), if the years to maturity...

What is the semi-annual coupon bond’s nominal yield to maturity (YTM), if the years to maturity is 15 years, and sells for 119% with coupons rate of 10%? Assume the par value of the bond is $1,000

Solutions

Expert Solution

Yeild to maturity is the expected return on bond if the bond is held till maturity

Face Value = $1,000
Semi annual Coupon = (10 % of 1000 ) / 2 = 50
n= 15 * 2 = 30
Price of Bond = 1000 * 119% = $1,190

Semi annual YTM = Coupon + [ (Face Value - Price of Bond) / n ] / [ Face Value 0.40 + Price of Bond * 0.60 ]

= 50 + [ (1000 - 1190) / 30 ] / [ 1000 * 0.40 + 1190 * 0.60 ]

= (50 - 6.3333 ) / 1,114

= 3.9198

Annual YTM = 3.9198 * 2 = 7.83%

And : The YTM of semi - annual coupon baond is 7.83%.

jeff jeffy answered 2 years ago

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