Question

Suppose the following bond quotes for IOU Corporation appear in the financial page of today’s newspaper. Assume the bond has a face value of $1,000 and the current date is April 19, 2012. What is the yield to maturity of the bond? (Assume coupons are paid semiannually.)

(Enter your answer as a percentage, omit the "%" sign in your response, and enter your answer with two decimal places. For example, 1.214% should be entered as 1.21.)

Company (Ticker)   Coupon Maturity Last Price   Last Yield   EST Vol (000s)  

IOU (IOU)        6.8    Apr 19, 2033       99                ?? 1,845

Answer 1

a.Information provided:

Face value= future value= $1,000

Market price= present value= 99%*$1,000 = $990

Time= April 19, 2033 - April 19, 2012 = 21 years*2 = 42 semi-annual periods

Coupon rate= 6.8%/2 = 3.4%

Coupon payment= 0.034*$1,000= $34 per semi-annual period

The yield to maturity is calculated by entering the below in a financial calculator:

FV= 1,000

PV= -990

N= 42

PMT= 34

Press the CPT key and I/Y to compute the yield to maturity.

The value obtained is 3.4454.

Therefore, the yield to maturity is 3.4454%*2 = 6.8908% 6.89%.

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