Question

A 10-year corporate bond has a coupon rate of 6% with semi-annual payments. If the current...

A 10-year corporate bond has a coupon rate of 6% with semi-annual payments. If the current value of the bond in the marketplace is $900, then what is the Yield-to-Maturity (YTM)? How to do this on financial calculator?

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Answer #1

Yield-to-Maturity (YTM) of the Bond

The Yield to maturity of (YTM) of the Bond is calculated using financial calculator as follows (Normally, the YTM is calculated either using EXCEL Functions or by using Financial Calculator)

Variables

Financial Calculator Keys

Figure

Par Value/Face Value of the Bond [$1,000]

FV

1,000

Coupon Amount [$1,000 x 6.00% x ½]

PMT

30

Market Interest Rate or Yield to maturity on the Bond

1/Y

?

Maturity Period/Time to Maturity [10 Years x 2]

N

20

Bond Price [-$900]

PV

-900

We need to set the above figures into the financial calculator to find out the Yield to Maturity of the Bond. After entering the above keys in the financial calculator, we get the semi-annual yield to maturity (YTM) on the bond = 3.72%.

The semi-annual Yield to maturity = 3.72%.

Therefore, the annual Yield to Maturity of the Bond = 7.44% [3.72% x 2]

“Hence, the Yield-to-Maturity (YTM) of the Bond will be 7.44%”

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