Question

A

11​-year

bond pays interest of

$26.10

​semiannually, has a face value of

$1,000​,

and is selling for

$723.25.

What are its annual coupon rate and yield to​ maturity?

The annual coupon rate is

nothing​%.

​(Round to two decimal​ places).The yield to maturity is

nothing​%.

​(Round to two decimal​ places).

Answer 1

As given, Bond pays interest of 26.10 semiannually which means Bond pays interets of 52.20 annually.

Hence the annual coupon rate is = 52.20 /1000 = 5.22%

To find out yield to maturity (YTM), we use Goal seek method in excel:

Assume YTM = 5% in excel, calculate price of Bond.

Formula used:

Now using Goal seek, set Price of Bond = $723.25 by changing YTM:

Yield to Maturity is 9.29%.