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What is the yield to maturity for the following bonds? Assume these are bonds issued in...

What is the yield to maturity for the following bonds? Assume these are bonds issued in the U.S. Use the Excel RATE function to solve.

25 years to maturity, 8.5% coupon rate, current price is $1,030. Round answer to 2 decimal places.

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Answer #1

The bonds issued in the U.S. typically pay coupons semi-annually. So, we multiply the result from rate function by 2 to get the yield to maturity

25 years to maturity, 8.5% coupon rate, current price is $1,030.

Yied to maturity = RATE(nper, pmt, pv, [fv], [type], [guess]) * 2

nper = 25 * 2 = 50 semi-annual payments

pmt = 1000 * 0.085/2 = 42.5

pv = -1030

[fv] = 1000

Ignore [type] and [guess] as they are optional

Yied to maturity =RATE(50, 42.5, -1030, 1000) * 2

Yield to maturity = 4.107763% * 2

Yield to maturity = 0.08215526

Yield to maturity = 8.215526%

Yield to maturity = 8.22%

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