Question

The MNO bond has 8% coupon rate (semi-annual interest), a maturity value of $1000 matures in 5 years and current price of $1200. What is the bond yield to maturity?

Note; I want the answer with traditional formula and steps

Answer 1

Current Price = 1200

Coupon 8%

Maturity = 5 years

SInce the Current Price of Bond > Par Value, the TYM will be less than Coupon.

Let's assume the YTM be 4%

Semi Annual Payment

Value of Bond =

=

= 1179.65

Now,

Let's assume the YTM be 3%

Value of Bond =

=

= 1230.55

YTM =

=

= 3% + (30.55 / (30.55) + (20.35)) * 1

= 3% + (30.55 / 50.9) * 1

= 3% + 0.600

= 3.60%