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In: Finance

Assume that there is a bond on the market priced at $1450 and that the bond...

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

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Expert Solution

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%

                                                                               


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