Question

 The market price is ​$1050 for a 19​-year bond ​($1000 par​ value) that pays 11 percent annual​ interest, but makes interest payments on a semiannual basis ​(5.5 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

Market price= present value= $1,050

Time= 19 years*2= 38 semi-annual periods

Coupon rate= 11%/2= 5.50%

Coupon payment= 0.055*1,000= $55

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

FV= 1,000

PV= -1,050

N= 38

PMT= 55

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

The value obtained is 5.1950.

Therefore, the yield to maturity is 5.1950%*2= 10.3917%   10.39%.

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