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What is yield to maturity of $1000 face-value 8% coupon bond with a selling price of...

What is yield to maturity of $1000 face-value 8% coupon bond with a selling price of $1010 that has 1 year left to maturity? Assuming no inflation, under what conditions will this coupon bond have a negative yield (think about its selling price)? What about any coupon bond with any maturity?

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Answer #1

Calculation of YTM:

This is done through Excel as below:


If the price (PV) is much higher than the face value (FV), YTM would be negative; such as (-1,100) price.

The increase in maturity increases YTM and recovers its higher price. The stretch on maturity helps to get higher YTM in future.

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