Question

ABC Inc. has 7.0 percent coupon bonds on the market with 9 years to maturity. The bonds make semi-annual payments and currently sell for 110 percent of par. What is the YTM?

-5.57%

-5.56%

-6.36%

Answer 1

Information provided:

Par value= future value= $1000

Time= 9 years*2= 18 semi-annual periods

Coupon rate= 7%/2= 3.5%

Coupon payment= 0.035*1,000= $35

Current price= present value= 110*1,000= $1,100

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

FV= 1,000

N= 18

PMT= 35

PV= -1,110

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

The value obtained is 2.7860.

Therefore, the yield to maturity is 2.7860*2= 5.5730%5.57%

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