Question

​(Related to Checkpoint​ 9.2)  ​(Yield to​ maturity)  The market price is ​$750 for a 17​-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?

Answer 1

Yield to Maturity(YTM) =[Periodic Coupon Amount + (Face Value - Price) / no. of Periods] / [(Face Value + Price) / no. of Periods
Here,
Periodic Coupon Amount =$1,000*6% =$60
Face Value =$1,000
Price =$750
no. of periods(n) =34
Yield to Maturity(YTM) =[$60 + ($1,000-$750) / 34] / [($1,000+$750)/2]
YTM =($60+$7.3529412) / $875
YTM =$67.35 / $875 =0.07697 or 7.697% or 7.7%