Question

A $1000 par value bond has a coupon rate of 7.7%, pays interest semi-annually, matures in 22 years, and is priced at a 82.97 discount from par value. What is the annual yield to maturity of this bond? (Answer to the nearest one hundedth of a percent, i.e., 1.23 but do not include the % sign).

Answer 1

Information provided:

Par value= future value= $1,000

Present value= 82.97*1,000= 829.70

Coupon rate= 7.70%/2= 3.85%

Coupon payment= 0.0385*1,000= $38.50

Time= 22 years*2= 44 semi-annual periods

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

FV= 1,000

PV= -829.70

PMT= 38.50

N= 44

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

The value obtained is 4.78.

Therefore, the annual yield to maturity is 4.78*2= 9.56.

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