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The market price is ​$725 for a 14​-year bond ​($1000 par​ value) that pays 11 percent...

The market price is ​$725 for a 14​-year bond ​($1000 par​ value) that pays 11 percent annual​ interest, but makes interest payments on a semiannual basis ​(5.5 percent​ semiannually). What is the​ bond's yield to​ maturity?

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Answer #1

Face Value of Bond = $1000

Semi-annual Coupon payment = $1000*5.5% = $55

No of coupon payments = 14 years*2 = 28

Current Price = $725

Calculating the Semi-annual Yield to Maturity(YTM) using the Excel "rate" Function:-

So, Semi-annual YTM = 7.9851%

Annual YTM = 7.9851%*2 = 15.9702%

So, the​ bond's yield to​ maturity is 15.9702%

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