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  A​ bond's market price is ​$725. It has a ​$1 comma 000 par​ value, will mature...

  A​ bond's market price is ​$725. It has a ​$1 comma 000 par​ value, will mature in 6 ​years, and has a coupon interest rate of 9 percent annual​ interest, but makes its interest payments semiannually. What is the​ bond's yield to​ maturity? What happens to the​ bond's yield to maturity if the bond matures in 12 ​years? What if it matures in 3 ​years? a.  The​ bond's yield to maturity if it matures in 6 years is

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Answer #1

1)

Coupon = (0.09 * 1000) / 2 = 45

Number of periods = 6 * 2 = 12

Yield to maturity = 16.37%

Keys to use in a financial calculator:

2nd I/Y 2

FV 1000

PMT 45

PV -725

N 12

CPT I/Y

The​ bond's yield to maturity if it matures in 6 years is 16.37%

2)

Coupon = (0.09 * 1000) / 2 = 45

Number of periods = 12 * 2 = 24

Yield to maturity = 13.74%

Keys to use in a financial calculator:

2nd I/Y 2

FV 1000

PMT 45

PV -725

N 24

CPT I/Y

The​ bond's yield to maturity if it matures in 12 years is 13.74%

3)

Coupon = (0.09 * 1000) / 2 = 45

Number of periods = 3 * 2 = 6

Yield to maturity = 22.00%

Keys to use in a financial calculator:

2nd I/Y 2

FV 1000

PMT 45

PV -725

N 6

CPT I/Y

The​ bond's yield to maturity if it matures in 3 years is 22.00%

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