Question

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?

Answer #1

Par value=$1,000

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%

**Answer: 7.52%**

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