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​(Yield to​ maturity)  The market price is ​$775 for a 16​-year bond ​($1,000 par​ value) that...

​(Yield to​ maturity)  The market price is ​$775 for a 16​-year bond ​($1,000 par​ value) that pays 11 percent annual​ interest, but makes interest payments on a semiannual basis ​(5.5 percent​ semiannually). What is the​ bond's yield to​ maturity?

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Answer #1

Given that the face value of the bond is $1000, present value is $775 and the time to maturity is 16 years.
As the coupon interest is paid semiannually, the total number of periods=16*2=32
Semiannual coupon rate is 5.5%
The semiannual coupon payment=(Semiannual coupon rate)*(Face value of the bond)=5.5%*$1000=$55
Now, we can calculate the yield to maturity using excel.

The semiannual yield to maturity is 7.34%. So, the annual yield to maturity is 7.34%*2=14.68%

Note: As the present value is a cash outflow, we have taken it as negative in excel.

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