Question

A $1000 par value bond pays 6% coupon rate, payable semi-annually and it matures in 12 years and it is worth $900 today. What is yield to maturity for this bond? 7.68% 7.26% 3.16% 3.63%

Answer 1

Yield to Maturity (YTM) of the Bond

The Yield to maturity of (YTM) of the Bond is calculated using financial calculator as follows (Normally, the YTM is calculated either using EXCEL Functions or by using Financial Calculator)

Variables	Financial Calculator Keys	Figure
Face Value [$1,000]	FV	1,000
Coupon Amount [$1,000 x 6% x ½]	PMT	30
Yield to Maturity [YTM]	1/Y	?
Time to Maturity [12 Years x 2]	N	24
Bond Price [-$900]	PV	-900

We need to set the above figures into the financial calculator to find out the Yield to Maturity of the Bond. After entering the above keys in the financial calculator, we get the yield to maturity (YTM) on the bond = 7.26%”

“Therefore, the Yield to Maturity (YTM) of the Bond will be 7.26%”