Question

new markets has 1,000 face value bonds outstanding that pay interest semi annually, mature in 14.5 years and have a 4.50% coupon. the current price is quoted at 97.60% of par. what is the yield to maturity? Please show step by step how to solve using financial calculator, BA 2 plus.

Answer 1

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =14.5x2

976 =∑ [(4.5*1000/200)/(1 + YTM/200)^k]     +   1000/(1 + YTM/200)^14.5x2

k=1

YTM% = 4.73

FV = 1000

N = 14.5*2 = 29

PMT = 4.5%*1000/2 = 22.5

PV = -97.6%*1000 = -976

CPT I/Y

=2.365

YTM = 2*I/Y = 2.365*2 = 4.7%