In: Finance
What is the yield to maturity of a nine-year, $5,000 bond with a 5% coupon rate and semiannual coupons if this bond is currently trading for a price of $4,404?
A.8.15%
B.3.4%
C.6.79%
D.9.51%
The yield to maturity is computed as follows:
Plug the below variables as follows:
FV = 5,000
PV = - 4,404
PMT = 125 (5,000 x 5% / 2)
N = 18 (9 x 2)
Now press CPT and then I/Y. It will give I/Y equal to 3.395959963%.
Since the payments are on semi annual basis, hence the above rate shall be multiplied by 2 as follows:
= 3.395959963% x 2
= 6.79% Approximately