In: Finance
Assume that there is a bond on the market priced at $1450 and that the bond comes with a face value of $1,000 (a fairly common face value for bonds). The coupon rate for the bond is 15% and the bond will reach maturity in 8 years. What is Bond Yield to Maturity
Answer to the question:
Given: Market price of bond $1450
Face Value $1000
Coupon Rate 15%
Years to maturity 8 years
Calculation of YTM : Interest + Face Value - Market Price
Number of years
Face Value - Market Price/2 =150 + 1000 – 1450 8 1000+ 1450 2 = 150 + (56.25) 1225 =7.6530% i.e. approximately equal to 7.65% |