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A 9 percent coupon bond with 13 years left to maturity is offered for sale at...

  1. A 9 percent coupon bond with 13 years left to maturity is offered for sale at $1,350. What yield to maturity is the bond offering? (Assume interest payments are paid semi-annually.)

can anyone do it without calculator?

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Answer #1

Given that, the bond is a 13 years bond, as the interest payments are made semi-annually, number of periods=13*2=26
Present value of the bond=$1350
Given that the coupon rate is 9%
We take the future value or face value of the bond as $1000
Now, annual coupon payment=Face value*Coupon rate=$1000*9%=$90
As the interest payments are made semi-annually, semiannual coupon payment will be $90/2=$45
We will do it in excel:
As present value is a cash outflow, it is shown as negative in excel.

This 2.63% is semiannual yield. Annual yield will be 2.63%*2=5.26%

Note: As the number of periods is high, we normally solve these type of problems using a financial calculator or excel.

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