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)?
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%
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