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TCO D) A bond currently sells for $1,000 and has a par of $1,000. It was...

TCO D) A bond currently sells for $1,000 and has a par of $1,000. It was issued two years ago and had a maturity of 10 years. The coupon rate is 6% and the interest payments are made semiannually. What is its YTM? Show your work.

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Answer #1

Information provided:

Par value= future value= $1,000

Present value= $1,000

Time= 10 years*2= 20 semi-annual periods

Coupon rate= 6%/2= 3%

Coupon payment= 0.03*1,000= $30

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

Enter the below into a financial calculator:

FV= 1,000

PV= 1,000

N= 20

PMT= 30

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

The value obtained is 3%.

Therefore, the yield to maturity of the bond is 3% for a semiannual period and 3%*2= 6% for an annual period.

In case of any further queries, kindly comment on the solution.

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