Question

P9-7 (similar to) (Related to Checkpoint 9.2) (Yield to maturity) The market price is $800 for a 15-year bond ($1,000 par value) that pays 9 percent annual interest, but makes interest payments on a semiannual basis (4.5 percent semiannually). What is the bond's yield to maturity? The bond's yield to maturity is %. (Round to two decimal places.)

Answer 1

Information provided:

Par value=Future value= $1,000

Time= 15 years*2= 30 semi-annual periods

Coupon rate= 9%/2= 4.50%

Coupon payment= 0.045*1,000= $45

Current value= present value= $800

The yield to maturity is calculated by entering the below in a financial calculator:

FV= 1,000

PV= -800

N= 30

PMT= 45

Press the CPT key and I/Y to compute the yield to maturity.

The value obtained is 5.9443.

Therefore, the yield to maturity is 5.9443%*2= 11.8887% $\rightarrow$    11.89%.

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