Question

**Using semi-annual compounding, what is the yield to maturity on a 4.65 percent coupon bond with 18 years left to maturity that is offered for sale at $1,025.95? Assume par value is $1000.**

Answer #1

**Correct Answer =4.44%**

Bond price =C*[1-(1+YTM)^-n / YTM] + [P/(1+YTM)^n] | ||||||

Where, | ||||||

C= Coupon amount =1000*4.65%*6/12 =23.25 | ||||||

YTM = Yield To maturity | ||||||

n = Number of periods =18*2 =36 | ||||||

P= Par value =1000 | ||||||

$1025.95=23.25 * [1 - (1 + YTM)^-36 / YTM] + [1000 / (1 + YTM) ^36] | ||||||

1025.95/23.25 =[1 - (1 + YTM)^-36 / YTM] + [1000 / (1 + YTM) ^36] | ||||||

44.13 =[1 - (1 + YTM)^-36 / YTM] + [1000 / (1 + YTM) ^36] | ||||||

YTM = | 2.22% | |||||

Annually | 4.44% |

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