Question

bond has $1,000 face value, 25 years to maturity, 3.6% annual coupon rate. The bond’s current price is $948.92. Assuming the bond pays coupons semiannually, what is the bond’s yield to maturity (YTM)?

Answer 1

Face Value = $1000

Annual Coupon rate = 3.6%

Annual Coupon payment = $1000*3.6% = $36

Price of bond = $ 948.92

Maturity(n) = 25 years

Calculating YTM of the bond:

Taking YTM as 4%:

Price = $562.3956 + $ 375.12

Price = $ 937.52

Now, Since, At YTM 4% price is closer to Original price, taking another YTM at 3%

Price = $ 626.8716 + $ 477.61

Price = $ 1104.48

Now, calculating YTM:

YTM = 3.93%

So, Yield to maturity is 3.93%

If you need any clarification, you can ask in comments.

If you like my answer, then please up-vote as it will be motivating