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%