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Oak Bay Software has 10.0% coupon bonds on the market with 18 years to maturity. The bonds make semiannual payments and currently sell for 107.6% of par.
What is the YTM? (Do not round intermediate calculations. Round the final answer to 2 decimal places.)
YTM %
What is the effective annual yield? (Do not round intermediate calculations. Round the final answer to 2 decimal places.)
Effective annual yield %
Here, Annual Coupon rate = 10%
Semi -Annual Coupon rate = 10%/2 = 5%
Term to maturity = 18 years
Semi -Annual Periods = 18 years * 2 = 36
Let the Par Value of the Bond = $1000
Current Selling Price of Bond = 107.6% of Par Value = $1076
Part a
Using the Formula of Yield to Maturity
Semi - Annual Yield to Maturity is 4.61%
Annual Yield to Maturity is 4.61%*2 = 9.22%
Part b
Here,
Number of Compounding Periods = 2(As semi -annual periods means 6 months)
Nominal Interest rate = Annual Yield to Maturity = 9.22%
Using the Effective Annual Rate Formula
Answer: Part a Yield to Maturity of the Bond is 9.22%
Part b Effective Annual Yield is 9.43%