Question

An annual bond has a face value of $10,000, a coupon rate of 11.9%, a yield to maturity of 7.5% and has 12 years remaining to maturity. What is the price of the bond?

Answer 1

According to YTM approximation formula -

where,
I = annual interest rate.
RV = redemption value
N = no. of years till maturity
P = current market price.

Here,

RV = $ 10000 ,

I = 11.9 % of 10000 i.e 1190 $

YTM = 7.5 %

N = 12 years

We need to find P.

P = 19780 / 1.45

= 13,641.38 $ (approx)

Hope it helps!