Question

Gwenyth just purchased a bond for $1,250 that has a maturity of 10 years and a coupon interest rate of 8.5 percent, paid annually. What is the YTM of the $1,000 face value bond that she purchased? How would I solve this in Excel?

Answer 1

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =10

1250 =∑ [(8.5*1000/100)/(1 + YTM/100)^k]     +   1000/(1 + YTM/100)^10

k=1

YTM% = 5.23

YTM in excel formula:

=RATE(years*number of compounding,coupon rate*par value/(number of compounding*100),-bond price,par value,,)*number of compounding

=RATE(10*1,8.5*1000/(1*100),-1250,1000,,)*1

=5.23%

******please give 5 stars thank you*******