Question

Man-zeer Inc.,​ (a Kramer/Costanza joint​ venture) bonds are currently trading at

​$649.46.

The bonds have a face value of

$1,000​,

a coupon rate of

2.5​%

with coupons paid​ semiannually, and they mature in

15

years. What is the yield to maturity of the​ bonds?

Answer 1

No of periods = 15 years * 2 = 30 semi-annual periods

Coupon per period = (Coupon rate / No of coupon payments per year) * Face value

Coupon per period = (2.5% / 2) * $1000

Coupon per period = $12.5

Bond Price = Coupon / (1 + YTM / 2)^period + Face value / (1 + YTM / 2)^period

$649.46 = $12.5 / (1 + YTM / 2)¹ + $12.5 / (1 + YTM / 2)² + ...+ $12.5 / (1 + YTM / 2)³⁰ + $1000 / (1 + YTM / 2)³⁰

Using Texas Instruments BA 2 plus calculator

SET N = 30, PMT = 12.5, FV = 1000, PV = -649.46

CPT --> I/Y = 3.05

YTM = 2 * I/Y

YTM = 2 * 3.05%

YTM = 6.1%