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Company A bonds sell for $887. These bonds have a par value of $1000 and coupon...

Company A bonds sell for $887. These bonds have a par value of $1000 and coupon rate of 9%. If time to maturity is 10 years, what is yield to maturity of these bonds?

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Answer #1

YTM is calculated using RATE function in Excel :

nper = 10 (10 years remaining until maturity with 1 annual coupon payment each year)

pmt = 1000 * 9% (annual coupon payment = face value * coupon rate)

pv = -887 (Current price of bond. This is entered with a negative sign because it is a cash outflow to buy the bond today).

fv = 1000 (face value of bond receivable at maturity).

RATE is calculated to be 10.91%. This is the YTM.

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