ABC's bond currently sell for $900. If the coupon rate is 8% and the bonds have...

ABC's bond currently sell for $900. If the coupon rate is 8% and the bonds have 11 years to maturity, what is the yield to maturity? Assume that the par value is $1,000 and coupon payments are semi-annual.

Expert Solution

Par/Face value	1000
Annual Coupon rate	0.08
Annual coupon	80
semi-annual coupon	40

Present Value = Future value/[(1+(r/m))^mt]
Use excel to find r.
m is the compounding period that is 2
mt is the time period.
price of the bond = sum of present values of future cash flows
price of the bond = 900
r/2	0.0474	r	0.0948
mt	1	2	3	4	5	6	7	8	9	10	11	12	13	14	15	16	17	18	19	20	21	22
future cash flow	40	40	40	40	40	40	40	40	40	40	40	40	40	40	40	40	40	40	40	40	40	1040
present value	38.1898	36.46153	34.81146	33.23607	31.73198	30.29595	28.92491	27.61591	26.36616	25.17296	24.03376	22.94611	21.90769	20.91626	19.9697	19.06597	18.20314	17.37936	16.59286	15.84195	15.12502	375.4541
sum of present values	900

The yield to maturity is 9.48%.

jeff jeffy answered 1 year ago

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