Question

A $1,000 (par value) bond with a coupon rate of 10%, interest paid semiannually, matures in ten years and sells for $940.25. What is the yield to maturity?

	A.	11.0%
	B.	10.4%
	C.	5.2%
	D.	5.5%

Answer 1

You need to use a Financial calculator to solve this problem. You can download it.

N = 10*2 = 20 (There will be semiannual payments for 10 years, so 20 payments)

PV = 940.25 (The present value of the bond is $940.25)

PMT => 10% of 1,000 = 100/2 = -50 ( The coupon 10% is on Face Value, as semiannual so divided by 2)

FV = -1,000 (The Face value of bond is $1,000)

CPT + I/Y = 5.49

5.49 is semiannual, so annual will be 5.49*2 = 11

So the correct option is "A"

If you find the solution to be helpful, kindly give a thumbs up