Question

Now let's say that Bourdon Software has 6.7 percent coupon bonds on the market with 18 years to maturity. The bonds make semiannual payments and currently sell for 105 percent of par. What is the YTM? (Enter your answer as a percentage, omit the "%" sign in your response, and enter your answer with two decimal places. For example, 1.214% should be entered as 1.21.)

Answer 1

We have provided with the following information:

Future value= $1,000

Time= 18 years*2= 36 semi-annual periods

Coupon rate= 6.70%/2= 3.35%.

Coupon payment= 0.0335*1,000= $33.50

Present value= 105%*1000= $1,050

The yield to maturity is calculated with the help of a financial calculator.

The below has to be entered in the financial calculator:

FV= 1,000; PV= -1,050; N= 36; PMT= 33.50

Press CPT and I/Y to calculate the yield to maturity.

The yield to maturity is 3.12% per semi-annual period and 3.1170*2= 6.23 percent annually.