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A $1,000 par value bond has an 8% coupon rate (paid semiannually). It has 5 years...

A $1,000 par value bond has an 8% coupon rate (paid semiannually). It has 5 years remaining to maturity. If bond’s current price $1,085.30, what should be the YTM of this bond? Group of answer choices A)7.37% B)3.69% C)3% D)6%

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Answer #1

Information provided:

Par value= future value= $1,000

Market price= present value= $1,085.30

Time= 5 years*2= 10 semi-annual periods

Coupon rate= 8%/2= 4%

Coupon payment= 0.04*1,000= $40

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

FV= 1,000

PV= -1,085.30

N= 5

PMT= 40

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

The value obtained is 3.

Therefore, the yield to maturity is 3%*2= 6%.

Hence, the answer is option d.

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