Question

A bond has a coupon rate of 3%, pays interest every year, sells for $1080, and matures in 3 years. What is its yield to maturity (APR)?

Answer 1

Yield to Maturity (YTM) of the Bond

The Yield to maturity of (YTM) of the Bond is calculated using financial calculator as follows (Normally, the YTM is calculated either using EXCEL Functions or by using Financial Calculator)

Variables	Financial Calculator Keys	Figure
Face Value [$1,000]	FV	1,000
Coupon Amount [$1,000 x3%]	PMT	30
Yield to Maturity [YTM]	1/Y	?
Time to Maturity [3 Years ]	N	3
Bond Price [1080]	PV	-1080

We need to set the above figures into the financial calculator to find out the Yield to Maturity of the Bond. After entering the above keys in the financial calculator,

we get the Yield to Maturity (YTM) on the bond = .32%