Question

1. 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%