A bond is currently priced at $1050 on a par value of $1,000. Its term to maturity is 20 years and its coupon rate is 8% (stated annually, paid semiannually). If you buy the bond, and hold it to maturity, what would be the yield to maturity?
Coupon rate is 8%
Semiannual coupon rate is 8% divided bt 2, that is equal to 4%
Semiannual coupon payment=(Par value)*(Semiannual coupon rate)=$1,000*4%=$40
Present value is $1050
Time period is 20 years. As the coupon payment is made semiannually, the number of periods will be equal to 20 multiplied by 2 that is equal to 40
With the given values, we can determine the yield to maturity using excel as:
Hence, the semiannual yield to maturity is 3.76%
Annual yield to maturity=2*3.76%=7.52%
Get Answers For Free
Most questions answered within 1 hours.