Question

you have just purchased a quarterly pay $150,000 provincial bond with a coupon 5.9%. The term remaining is 5.5 years at a cost of $149,162.51. What is the YTM?

Answer 1

You need to use a Financial calculator to solve this problem. You can download it.

N = 22 (The bond payments are made each quarter as 5.5 years remaining, so 22 payments left)

PV = -149,162.51 (The present value of the bond is $149,162.51)

PMT => 5.9% of 150,000 => 8,850 / 4 = 2,212.5 ( The coupon of 5.9% is on the facevalue and paid quarterly, so divided by 4)

FV = 150,000 (The Face value of bond is $150,000)

CPT + I/Y = 1.5050

1.5050% is quarterly YTM, so yearly YTM is after multiplying it by 4.

1.5050% * 4 = 6.02%

So the YTM of the bond is 6.02%

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