Question

A firm issues a 5-year par bond with a coupon rate of 10% and a face value of $1000. The price of the bond is $900. What is this bond’s yield-to-maturity?

Answer 1

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =5

900 =∑ [(10*1000/100)/(1 + YTM/100)^k]     +   1000/(1 + YTM/100)^5

k=1

YTM% = 12.83