Question

In: Finance

The market price is ​$1,200 for a 9 ​-year bond ​($1,000 par​ value) that pays 8...

The market price is ​$1,200 for a 9 ​-year bond ​($1,000 par​ value) that pays 8 percent annual​ interest, but makes interest payments on a semiannual basis ​(4 percent​ semiannually). What is the​ bond's yield to​ maturity?

Solutions

Expert Solution

Yield to maturity is the rate of return the investor will get if he/she hold the bold till maturity period

So YTM is like internal rate of return, if we discount all the cash inflow from the bond using YTM, the present value will be equal to the bond current price.

YTM is calculated using Excel, the function used is (IRR)

Pls refer below table

Year

Cash flow

Amount

0

Bod price (Outflow)

-1200

1

Coupon (Inflow)

40

2

Coupon (Inflow)

40

3

Coupon (Inflow)

40

4

Coupon (Inflow)

40

5

Coupon (Inflow)

40

6

Coupon (Inflow)

40

7

Coupon (Inflow)

40

8

Coupon (Inflow)

40

9

Coupon (Inflow)

40

10

Par + Coupon (Inflow

40

11

Coupon (Inflow)

40

12

Coupon (Inflow)

40

13

Coupon (Inflow)

40

14

Coupon (Inflow)

40

15

Coupon (Inflow)

40

16

Par + Coupon (Inflow

40

17

Coupon (Inflow)

40

18

Par + Coupon (Inflow

1040

YTM

2.60%

Formula

=IRR(G44:G64)

Semiannual YTM = 2.6

Annual; YTM = 2.6*2 = 5.2%

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Feel free to comment if you need further assistance J

Pls rate this answer if you found it useful.

jeff jeffy answered 3 months ago
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