Question

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?

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%

Solutions

Expert Solution

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


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