Question

Calculate the yield to maturity on the following bonds.

a.	A 8.2 percent coupon (paid semiannually) bond, with a $1,000 face value and 22 years remaining to maturity. The bond is selling at $895. (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161))

Yield to maturity

% per year

b.	An 5.3 percent coupon (paid quarterly) bond, with a $1,000 face value and 10 years remaining to maturity. The bond is selling at $915. (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161))

Yield to maturity

% per year

c.	An 7.3 percent coupon (paid annually) bond, with a $1,000 face value and 8 years remaining to maturity. The bond is selling at $1,065. (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161))

Yield to maturity

% per year

Answer 1

Requirement (a)

Yield to Maturity [YTM] = Coupon Amount + [ (Face Value – Bond Price) / Maturity Years] / [(Face Value + Bond Price)/2]

= $41 + [ ($1,000 – 895) / 44 Years)] / [($1,000 + 895) / 2]

= 4.67%

Semiannual YTM = 4.67%

Annual YTM = 9.33%

“Yield to Maturity = 9.33 % per year “

Requirement (b)

Yield to Maturity [YTM] = Coupon Amount + [ (Face Value – Bond Price) / Maturity Years] / [(Face Value + Bond Price)/2]

= $13.25 + [ ($1,000 – 915) / 40 Years)] / [($1,000 + 915) / 2]

= 1.625%

Semiannual YTM = 1.625%

Annual YTM = 1.625% x 4 = 6.46%

“Yield to Maturity = 6.46 % per year “

Requirement (c)

Yield to Maturity [YTM] = Coupon Amount + [ (Face Value – Bond Price) / Maturity Years] / [(Face Value + Bond Price)/2]

= $73 + [ ($1,000 – 1,065) / 8 Years)] / [($1,000 + 1,065) / 2]

= 6.24%

“Yield to Maturity = 6.24 % per year “