Question

A 30-year 6.000% semi-annual coupon bond has a current price of 103.212% of PAR. If the tenor of the bond is 14 years, what must the yield to maturity be?

Answer 1

The yield to maturity is computed as shown below:

Plug the below variables in the financial calculator as follows:

N = 28 (14 x 2)

PMT = 30 (6% / 2 x 1,000)

FV = 1,000

PV = - 1,032.12 (1,000 x 103.212%)

Finally press CPT and then press I/Y. It will give I/Y equal to 2.832312713%.

Since the payments are on semi annual basis, we shall multiply the above rate by 2 as follows:

= 2.832312713% x 2

= 5.66% Approximately

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