Question

What is the yield to maturity on a bond that has a price of $1,700 and a coupon rate of 12% annually for 6 years at the end of which it repays the principal of $1000? Is the bond selling at premium, at par, or at discount? How can you tell? (Using financial calculator)

Answer 1

The yield to maturity is computed as follows:

Plug the below variables in the financial calculator as follows:

PV = - 1,700

FV = 1,000

PMT = 120

N = 6

Finally press CPT and then I/Y. It will give I/Y equal to 0.2366% Approximately

Since the current price is more than $ 1,000 and also the coupon rate is more than the yield to maturity, hence the bond is selling at a premium.