Question

(Yield to maturity) Assume the market price of a 11-year bond for Margaret Inc. is $725,...

(Yield to maturity) Assume the market price of a 11-year bond for Margaret Inc. is $725, and it has a par value of $1,000. The bond has an annual interest rate of 9% that is paid semiannually. What is the yield to maturity of the bond?

The yield to maturity of the bond is ___% (Round to two decimal places)
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Answer #1

Answer:

Face Value = $1,000
Current Price = $725

Annual Coupon Rate = 9%
Semiannual Coupon Rate = 4.50%
Semiannual Coupon = 4.50% * $1,000 = $45

Time to Maturity = 11 years
Semiannual Period to Maturity = 22

Let semiannual YTM be i%

$725 = $45 * PVIFA(i%, 22) + $1,000 * PVIF(i%, 22)

Using financial calculator:
N = 22
PV = -725
PMT = 45
FV = 1000

I = 6.98%

Semiannual YTM = 6.98%
Annual YTM = 2 * 6.98%
Annual YTM = 13.96%

The Yield to maturity of the Bond is 13.96%.

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