Question
In: Finance
The market price is $900 for a 16-year bond ($1,000 par value) that pays 12 percent...
The market price is $900 for a 16-year bond ($1,000 par value) that pays 12 percent annual interest, but makes interest payments on a semiannual basis (6 percent semiannually).
What is the bond's yield to maturity?
Solutions
Expert Solution
The YTM of the bond can be calculated with the help of RATE function of Excel
Inputs required:
PV = 900
FV = 1000
Coupon (PMT) = 12%/2 * 1000 = 60
Nper = 16 years *2 = 32 semi annual periods
=RATE(32,60,-900,1000,0,0.1)
= 0.0677
The above rate is calculated on a semi annual basis.
Annual YTM = 0.0677 * 2 = 0.1354
= 13.54%
jeff jeffy answered 2 years agoRelated Solutions
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