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If you purchase a $1000 par value bond for $1025 that has a 6 3/8% coupon...

If you purchase a $1000 par value bond for $1025 that has a 6 3/8% coupon rate and 8 years until maturity, what will be your annual return?

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Answer #1

YTM is the reurn that provided by BOnd to its holder.

YTM = Rate at which least +ve NPV + [ NPV at that rate / Change in NPV due to 1% inc ] * 1%

= 5% + [ 63.87 / 65.58 ] * 1%

= 5% + 0.97%

= 5.97%

The bond provides 5.97% per anum to its holder.

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