Question

A bond sells for $921.10 and has a coupon rate of 7.40 percent. If the bond has 19 years until maturity, what is the yield to maturity of the bond? Assume semiannual compounding. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Answer 1

Information provided:

Current price= $921.10

Future value= $1,000

Coupon rate= 7.40%/2= 3.70% per semi-annual period

Coupon payment= 0.0340*1,000= $34

Time= 19 years*2= 38 semi-annual periods

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

FV= 1,000

PV= -921.10

PMT= 34

N= 38

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

The value obtained is 3.80%.

Therefore, the yield to maturity is 3.80%*2= 7.59%

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