Question

The market price is $585 for a 10-year bond ($1,000 par value) that pays 8 % annual interest, but makes interest payments on a semiannual basis (4% semiannually). What is the bond’s yield to maturity?

*Clearly show which EQUATIONS could be used to solve the
problem mathematically*

*Indicate the detailed steps on how to use FINANCIAL
CALCULATOR or Equations from the Textbook to solve the
problems.*

Answer #1

Information provided:

Par value= future value=$1000

Current price= $585

Coupon rate= 8%/2= 4%

Coupon payment= 0.04*1,000= $40

Time= 10 years*2= 20 semi-annual periods

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

FV= 1,000

PV= -585

PMT= 40

N= 20

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

The value obtained is 8.3318.

Therefore, the yield to maturity is 8.3318%*2= 16.6635%
**16.66%.**

In case of any query, kindly comment on the solution.

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