Question

A Treasury bond that settles on August 10, 2016, matures on August 3, 2021. The coupon rate is 4.3 percent and the quoted price is 103:5. What is the bond’s yield to maturity? (

Yield to maturity?

Answer 1

Assuming that the face value, F = $1,000

Given that Coupon rate = 4.3%

Quoted price = 103:5

=> This means 103 + 5/32 = 103.15625

=> P = 1000*103.15625% = $1,031.56

Number of years = 4 + 358/365 = 4.98

Coupon payment, I = 0.043*1000 = 43

Using YTM approximation formula, we get

YTM = [I + (F - P)/n]/ (F + P)/2

YTM = [43 + (1000 - 1031.56)/4.98]/ (1000 + 1031.56)/2

YTM = [43 + (-6.3374)]/1015.78

YTM = 0.0361 = 3.61%

Hence, the yield to maturity is 3.61%

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