Question

What is the yield to maturity of a 9.1 % semiannual coupon bond with a face value of​ $1,000 selling for $ 877.24$ that matures in 11 ​years?

Answer 1

Given in the question,                                                            

F = 1,000

P = 877.24

n = No. of years X 2 = 11 X 2 = 22    (No of years will be double because of semi annually)

r = 9.1/2 = 4.55%    (rate will be half because of semi annually)

Semi- Annual coupon (C) = F X r = 1000 X 4.55% = 45.5

YTM = C+ (F-P)/n

               (F+P)/2

= 45.5 + (1000-877.24)/22                             (Substituting the value from above)

               (1000+877.24)/2

=    51.08

938.62

         = 5.44%

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