Question

Suppose the following bond quotes for IOU Corporation appear in the financial page of today’s newspaper. Assume the bond has a face value of $1,000 and the current date is April 19, 2012. What is the yield to maturity of the bond? (Assume coupons are paid semiannually.) (round 2 decimal places)

Company (Ticker)   Coupon Maturity Last Price   Last Yield   EST Vol (000s)  

IOU (IOU)       5.9    Apr 19, 2033       91                ?? 1,845

Answer 1

Given the following information,

Face value = $1000

Time period in years = 2033 - 2012 = 21 years

Semi annual time period NPER = 21*2 = 42

Coupon rate = 5.9% = 0.059

Coupon payment = PMT = Coupon rate*FV/ Number of compounding periods

Coupon payment = PMT = 0.059*1000/ 2

Coupon payment = PMT = 59/ 2

Coupon payment = PMT = 29.5

Price = 91

Present value = Price*FV/100

Present value = 91*1000/100

Present value = 910

Calculation of YTM using excel function,

Therefore, YTM of the bond is 6.70%