Question

A 10‐year 6.8‐percent coupon bond is selling for 102.9 percent of par. What is the bond’s market yield if it makes semi‐annual coupon payments? (Round answer to 2 decimal places, e.g. 25.79%.)    Bond’s Market Yield( ) %

Answer 1

# of semiannuals left to maturity, NPER Semiannual coupon payment, PMT Bond's current selling price, PV Bond's maturity value at the end, FV Semiannual coupon payment type, TYPE Semiannual yield to maturity (YTM) Number of semiannuals per year Annual yield to maturity (YTM) 20 [10 years x 2 --> As there will be 2 semiannuals per year] $34 ($1,000 x 6.8% / 2 --> As coupons are payable at coupon rate on face value of the bonds] $1,029 ($1,000 x 102.9% --> As selling at 102.9% of the bond's par value] $1,000 [Par value of the bonds payable at maturity] 0 = 0 if coupons paid at the end of each period; 1 if coupons paid at the beginning of each period 3.2014% [Ref: EXCEL SCREENSHOT] 2 6.40% [3.2014% x 2] EXCEL SCREENSHOT: F 1 Semiannual yield to maturity (YTM) is calculated using EXCEL FUNCTION RATE(nper,pmt,pv,fv,type) where nper=20; pmt=-34; pv=1029; fv=-1000; type=0; Here, pmt & fv are negative as they denote cash inflows; pv is positive as it denotes cash outflow; type = 0 as coupons are paid at the end of each period only. A B C D E # of semiannuals left to maturity, NPER =10*2 [10 years x 2 --> As there will be 2 semiannuals per year] 2 Semiannual coupon payment, PMT =1000*6.8%/2 ($1,000 X 6.8% / 2 --> As coupons are payable at coupon rate on face value of the bonds] 3 Bond's current selling price, PV =1000*102.9% ($1,000 x 102.9% --> As selling at 102.9% of the bond's par value] 4 Bond's maturity value at the end, FV $1,000 [Par value of the bonds payable at maturity] Semiannual coupon payment type, TYPE 0 = 0 if coupons paid at the end of each period; 1 if coupons paid at the beginning of each period Semiannual yield to maturity (YTM) =RATE(B1,-B2,B3,-B4,B5) [Ref: EXCEL SCREENSHOT] 7 Number of semiannuals per year 2 8 Annual yield to maturity (YTM) =B6*B7 (3.2014% x 2) 9 5 6