Question

2. Scandinavian Design Inc.'s bonds currently sell for $645 and
offer a coupon rate of 4% paid semi-annually. If the remaining time
to maturity on the bonds is 22 years, what is their yield to
maturity? (4 points) **Show** **me what portion
of the price is being generated by the expected coupon payments for
bonus points.**

Answer #1

**The YTM is computed as shown below:**

**Plug the below variables in the financial calculator as
follows:**

PV = - 645

FV = 1,000

PMT = 20 (4% / 2 x 1,000)

N = 44 (22 x 2)

Finally press CPT and then press I/Y. It will give I/Y equal to 3.62679513%

Since the interest is paid on semi annual basis, hence the above rate shall be multiplied by 2 as follows:

= 3.62679513% x 2

**= 7.25% Approximately**

Feel free to ask in case of any query relating to this question

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