Question

Calculate the yield to maturity for following bonds (each has a par value and redemption value of $1,000):

a.) 8 percent coupon rate, 10 year maturity, $1,200 price

b.) 12 percent coupon rate, 20 year maturity, $800 price

If there is a way to calculate on the financial calculator and you could do a step by step process please do.

Answer 1

a.Information provided:

Par value= future value= $1,000

Time= 10 years

Current price= present value= $1,200

Coupon rate= 8%

Coupon payment= 0.08*1,000= $80

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

FV= 1,000

N= 10

PV= -1,200

PMT= 80

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

The value obtained is 5.36.

Therefore, the yield to maturity is 5.36%.

b.Information provided:

Par value= future value= $1,000

Time= 20 years

Current price= present value= $800

Coupon rate= 12%

Coupon payment= 0.12*1,000= $120

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

FV= 1,000

N= 20

PV= -800

PMT= 120

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

The value obtained is 15.23

Therefore, the yield to maturity is 15.23%.

In case of any query, kindly comment on the solution.