A mortgage-backed security, with face value $1,000 andsemi-annual coupon payments, matures in exactly one year...

A mortgage-backed security, with face value $1,000 and semi-annual coupon payments, matures in exactly one year from now. It trades at $1,019.85 now. If its coupon rate is 3% and the next coupon payment is 6 months from now, find its yield to maturity.

Expert Solution

A mortgage-backed security, with face value $1,000 and semi-annual coupon payments, matures in exactly one year from now. It trades at $1,019.85 now. If its coupon rate is 3% and the next coupon payment is 6 months from now, find its yield to maturity.

- Face Value of Bond = $1000

Semi-annual coupon payments = $1000*3%*1/2 = $15

No of coupon payments = No of years to maturity*2 = 1*2

= 2

Current Price = $1019.85

Calculating the Semi-annual Yield to Maturity(YTM) using excel "Rate" function:-

Semi-annual YTM = 0.5000%

Annual YTM = 0.5000%*2 = 1%

So, its yield to maturity is 1.00%

jeff jeffy answered 2 years ago

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