Question

An 8% semiannual coupon bond matures in 4 years. The bond has a face value of $1,000 and a current yield of 8.1793%.

A. What is the bond's price? Do not round intermediate calculations. Round your answer to the nearest cent.

B. What is the bond's YTM?

Answer 1

Future value= $1,000

Time= 4 years*2= 8 semi-annual periods

Coupon rate= 8% per year and 8%/2= 4% per semi-annual period

Coupon payment= 0.08*1,000= $80 per year and 0.04*1,000= $40

Current yield= 8.1793%

a. Current Yield= Annual interest/Current price

8.1793= 80/ Current price

Therefore, the price of the bond is 8.1793* 80= $654.34

b.The bond’s YTM is calculated by entering the below in a financial calculator:

FV= 1,000; PMT= 40; PV= -654.34; N= 8

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

The bond’s yield to maturity is 10.6281%*2= 21.26% per year.