Question

A bond has a coupon rate of 4%, pays interest quarterly, sells for $ 1100, and matures in 4 years. What is its yield to maturity (APR)?

Answer 1

Information provided:

Par value= future value= $1,000

Current price= present value= $1,100

Time= 4 years*4= 16 quarters

Coupon rate= 4%/4= 1% per quarter

Coupon payment= 1%*1,000= 10 per quarter

The yield to maturity is calculated by entering the below in a financial calculator:

FV= 1,000

PV= -1,100

N= 16

PMT= 10

Press the CPT key and I/Y to compute the yield to maturity.

The value obtained is 0.3559.

Therefore, the yield to maturity is 0.3559%*4= 1.4237% 1.42%.