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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 ago
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