Question

Consider a bond with a 10% annual interest rate, 15 years to maturity and a par value of $1000. The current price is $928.09. What's the bonds yield to maturity ?

Answer 1

First of all let’s see formula of yield to maturity;

(C + ((F – P) / n) / (F + P) / 2

C = Coupon rate

F = Face value

P = Price of the bond

n = Number of year to maturity

Now let’s put the values in the formula;

(C + ((F – P) / n) / (F + P) / 2

(100 + ((1000 – 928.09) / 15) / (1000 + 928.09) / 2

= 100 + ($71.91 / 15) / 964.045

= $104.794 / $964.045

= 10.87% (Approx.)