Question

Locust Grove Farms has a bond outstanding that matures in 27 years and pays a 10.88% coupon. The bond pays interest semi-annually and has a per value of 1,000. If the market price of the bond is 850.06 find the bond yield to maturity

Answer 1

Bond price =C*[1-(1+YTM)^-n / YTM] + [P/(1+YTM)^n]
Where,
C= Coupon amount =1000*10.88%*6/12 =54.4
YTM = Yield To maturity
n = Number of periods 27*2 =54
P= Par value
$850.06=54.4 * [1 - (1 + YTM)^-54 / YTM] + [1000 / (1 + YTM) ^54]
850.06/54.4=[1 - (1 + YTM)^-54 / YTM] + [1000 / (1 + YTM) ^54]
15.6261 =[1 - (1 + YTM)^-54 / YTM] + [1000 / (1 + YTM) ^54]
YTM (for six Month) =	6.44%
YMTM -Annually	12.88%