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Subway bonds have a 6.2% coupon rate and semiannual coupons. They have a par value of...

Subway bonds have a 6.2% coupon rate and semiannual coupons. They have a par value of $1000, 16 years to maturity and are currently selling for $894.54. What is the YTM for these bonds? (NOTE: Round your answer to two decimal places and report it as a percent: for 1.55% you would write 1.55)

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Answer #1

Semi - annual coupon payment = ( 0.062 2) $ 1000 = $ 31

The price of the bond and its yield to maturity are related as follows

In the above equation, solving for the value of r gives the bond's yield to maturity.

The value of r is found by trial and error method.

Let r = 3 %

The value of RHS of the equation is found to be = $ 1020.388766

Let r = 4%

he value of RHS of the equation is found to be = $ 839.1380365

The Semi annual YTM is between 3 & 4 %

YTM of the bonds = 7.39

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