Question

A firm has a bond issue with face value of $1,000, a 7% coupon rate, and nine years to maturity. The bond makes coupon payments every six months and is currently priced at $1,067.89. What is the yield to maturity on this bond

Answer #1

Bond price =C*[1-(1+YTM)^-n / YTM] + [P/(1+YTM)^n] | |||||

Where, | |||||

C= Coupon amount =$1000*7%/2 =$35 | |||||

YTM = Yield To maturity | |||||

n = Number of periods =9*2 =18 | |||||

P= Par value | |||||

$1067.89=35 * [1 - (1 + YTM)^-18 / YTM] + [1000 / (1 + YTM) ^18] | |||||

1067.89/35 =[1 - (1 + YTM)^-18 / YTM] + [1000 / (1 + YTM) ^18] | |||||

30.511 =[1 - (1 + YTM)^-18 / YTM] + [1000 / (1 + YTM) ^18] | |||||

YTM = | 3.006% | ||||

Annually ytm =3.006*2 | |||||

=6.01% |
|||||

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