In: Finance
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
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%.