Question

A bond has a face value of $1,000. The fair price of the bond is 7,1% higher than its face value. Coupon rate of the bond is 8%, payable semiannually. If maturiy of the bond is 10 years from today, what is the yield to maturity?

Answer 1

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =10x2

1071 =∑ [(8*1000/200)/(1 + YTM/200)^k]     +   1000/(1 + YTM/200)^10x2

k=1

YTM% = 7