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The bonds issued by Jensen & Son bear 6% coupon, payable semiannually. The bond matures in...

The bonds issued by Jensen & Son bear 6% coupon, payable semiannually. The bond matures in 12 years and has a $1,000 face value. Currently, the bond sells at par. What is the yield to maturity?

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Answer #1

Face Value = $1,000
Current Price = $1,000

Annual Coupon Rate = 6.00%
Semiannual Coupon Rate = 3.00%
Semiannual Coupon = 3.00% * $1,000
Semiannual Coupon = $30

Time to Maturity = 12 years
Semiannual Period to Maturity = 24

Let Semiannual YTM be i%

$1,000 = $30 * PVIFA(i%, 24) + $1,000 * PVIF(i%, 24)

Using financial calculator:
N = 24
PV = -1000
PMT = 30
FV = 1000

I = 3.00%

Semiannual YTM = 3.00%
Annual YTM = 2 * 3.00%
Annual YTM = 6.00%

Therefore, the yield to maturity on the bond is 6.00%

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