Question

Question 2 - Calculate the yield to maturity of the following bond with a par value of $1,000 that pays a 3.9% coupon semiannually. The bond was settled on Jan 1, 2010 and matures on Jan 1, 2032. It currently trades at a price of $972.84 (5 points)

Coupon Bond YTM

settlement date: 01/01/2020; maturity date: 01/01/2032; coupon rate: 3.9%; coupons per year: 2; face value (% of par): 100; Bond price (% of par): $972.84.

What is the YTM?

Please show work on Excel. Thank you!

Answer 1

The approx. formula for the Yield To Maturity is

YTM = (Coupon Amount + (Face Value - Current Price)/Number of Coupon Payments)/((Face Value + Current Price)/2)

However, the exact formula is complicated and this is where excel helps us calculate the exact YTM.

In Excel, there is a function called Yield which allows us to calculate the YTM of the bond easily. It takes the following input:

Settlement Date

Maturity Date

Annual Coupon Rate

Current Price of the Bond (In terms of $100 FV)

Redemption Value of the Bond (In terms of $100)

Frequency of Coupon Payment

All the above values are mentioned in the question and the Excel Calculation for the same are below.

Settlement Date	01/01/20
Maturity Date	01/01/32
Annual Coupon Rate	7.80%
Current Price	97.284
Redemption price	100
Frequency	2
Yield to Maturity	8.16%

Note: 8.16% is the annual yield of the bond. If you need the 6 months Yield please divide by 2.