Jack purchased a five-year bond today at $1,034.66. The bond pays 6.5 percent p.a, semiannually. Its...

Jack purchased a five-year bond today at $1,034.66. The bond pays 6.5 percent p.a, semiannually. Its face value is $1,000. The yield to maturity is closest to: (USE EXCEL or FINANCIAL CALCULATOR. )

Solutions

Expert Solution

Yield to Maturity (YTM) of the Bond

The Yield to maturity of (YTM) of the Bond is calculated using financial calculator as follows (Normally, the YTM is calculated either using EXCEL Functions or by using Financial Calculator)


Variables	Financial Calculator Keys	Figure

Face Value [$1,000]	FV	1,000
Coupon Amount [$1,000 x 6.50% x ½]	PMT	32.5
Yield to Maturity [YTM]	1/Y	?
Time to Maturity [5 Years x 2]	N	10
Bond Price [-1034.66]	PV	-1034.66

We need to set the above figures into the financial calculator to find out the Yield to Maturity of the Bond. After entering the above keys in the financial calculator, we get the yield to maturity (YTM) on the bond = 2.845%

The semi-annual Yield to maturity = 2.845%

Therefore, the annual Yield to Maturity = 5.69% [2.845% x 2]

“Hence, the Yield to Maturity (YTM) of the Bond will be 5.69%”

jeff jeffy answered 11 months ago

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