Question

Xpert Software has 7.0 percent coupon bonds on the market with 11 years to maturity. The bonds make semiannual payments and currently sell for 90.3 percent of par. The YTM is …………………… percent

Answer 1

Information provided:

Par value= future value= $1,000

Coupon rate= 7%/2= 3.5% per semi-annual period

Coupon payment= 0.035*1,000= $35

Time= 11 years*2= 22 semi-annual periods

Current price= present value= 90.3%*$1,000= $903

The yield to maturity is calculated by entering the below in a financial calculator:

FV= 1,000

PV= -903

N= 22

PMT= 35

Press the CPT key and I/Y to compute the yield to maturity.

The value obtained is 4.1830.

Therefore, the yield to maturity is 4.1830%*2= 8.3660% 8.37%.