Question

1)      Use the following corporate bond quotes:

·         Company (Ticker) = Gap Inc. (GPS)

·         Coupon = 6.2%

·         Maturity = Jan 15, 2020

·         Last Price = 102.256

·         Last Yield = ??

Assume today is Jan 15, 2016 and the face value of the bond is $1000, semi-annual coupons. Find the yield to maturity for the bond issued by Gap Inc?

Answer 1

semiannual interest = 1000*.062*6/12 =31

semiannual months = 4 years *2 =8                      [jan 15 2016 -Jan 15 2020]

price= 1000*102.256/1000 = 1022.56

Yield to maturity = [Interest + (face value -price)/number of semiannual months ]/[(face value +price)/2]

       =[31+(1000-1022.56)/8]/[(1000+1022.56)/2]

        =[31+(-22.56/8)]/[(2022.56/2]

       =[31- 2.82]/1011.28

       = 28.18/1011.28

        = .0278 or 2.78% semiannually

Annual yield to maturity = 2.78*2 = 5.56%