What is the YTM of a bond with a 2% semi-annual coupon,10 years until maturity, and a price of $970?
Face Value = $1,000
Current Price = $970
Annual Coupon Rate = 2.00%
Semiannual Coupon Rate = 1.00%
Semiannual Coupon = 1.00% * $1,000
Semiannual Coupon = $10
Time to Maturity = 10 years
Semiannual Period to Maturity = 20
Let Semiannual YTM be i%
$970 = $10 * PVIFA(i%, 20) + $1,000 * PVIF(i%, 20)
Using financial calculator:
N = 20
PV = -970
PMT = 10
FV = 1000
I = 1.169%
Semiannual YTM = 1.169%
Annual YTM = 2 * 1.169%
Annual YTM = 2.338% or 2.34%
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