Question

3.Ngata Corp. issued 12-year bonds 2 years ago at a coupon rate of 9.2 percent. The bonds make semiannual payments. If these bonds currently sell for 104 percent of par value, what is the YTM?

Answer 1

YTM =[Coupon + (F- P)/n ]    /(F+P/2)
Let say Bond Face Value is $1000
Coupon payment for Semi annual =$1000*9.2% *1/2 =$46
Price of the Bond Currently =$1000 *104% =$1040
Face value =F =$1000
Price =P=$1040
n= no of periods =10 years *2 =20 periods
YTM = [$46 + ($1000 -$1040)/20   ] /[(1000+1040)/2]
YTM =$46 -$2 /$1020 =$44/$1020 =0.04314=4.314%
YTM for semi annual period =4.314%
YTM for annual = Semi annual YTM *2 =4.314*2 =8.628%