Patricks products has outstanding bonds with and quarterly 6.5 percent coupon. The bonds have a par value of 1,000 and price of 906. the bonds will mature in 4 years. What is the yield to maturity on the bonds? please show steps for using a financial calculator.
Coupon Rate of 6.5%
Coupon = Coupon Rate * Face Value
Coupon = 6.5%*1000=65
Quarterly Coupon = 65/4 = 16.25
Face Value = 1000
Price = 906
N= 4 years*4= 16 Quarters.
1. Insert -906 and press PV. (Negative since price paid for bond will be outflow)
2. Insert 1000 and press FV
3. Insert 16 and press N. (Quarters , hence time period multiplied by 4)
4. Insert 16.25 and press PMT. (Coupon)
5. Press CPT and Press I/Y
We get Yield Rate equal to 2.34%. Note that this rate is Quarterly.
Annual YTM = Quarterly YTM * 4 = 2.3359% * 4 = 9.34%
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