A bond with a $1,600 face value and 13 years remaining until maturity pays a coupon rate of 8.25% compounded semi-annually. Calculate the yield to maturity if the bond is priced at $1,280.
Sol:
Face value (FV) =$1600
Present value (PV) = $1280
Coupon rate = 8.25%, Semiannually = 8.25%/2 = 4.125%
PMT (Semiannual coupon payment) = 1600 x 4.125% = $66
Period (nper) = 13 years, semiannually = 13 x 2 = 26
Yield to maturity (r)
To compute yield to maturity we have to use RATE function in excel.
FV | 1600 |
PV | -1280 |
Coupon rate | 4.125% |
nper | 26 |
PMT | 66 |
Rate (r) | 5.60% |
Therefore yield to maturity if the bond is 5.60%
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