Question

A bond with a $1,600 face value and 13 years remaining until maturity pays a coupon...

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.

Homework Answers

Answer #1

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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