Question

What is the yield to maturity of a

nine​-year,

$5,000

bond with a

4.4​%

coupon rate and semiannual coupons if this bond is currently trading for a price of

$4,745​?

Answer 1

Information provided:

Future value= $5,000

Present value= $4,745

Coupon rate= 4.40%/2= 2.20% per semi-annual period

Coupon payment= 0.0220*5,000= $110 per semi-annual period

Time= 9 years*2= 18 semi-annual periods

The yield to maturity is calculated by entering the below in a financial calculator:

FV= 5,000

PV= 4,745

PMT= 110

N= 18

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

The value obtained is 2.56% for a semi-annual period.

Therefore, the yield to maturity is 2.56% for a semi-annual period and 2.56%*2= 5.11% for an annual period.