Question

4. What is the yield to maturity (YTM) of a 20-yr. bond w/ a coupon rate of 10%/yr., has a $1K par value, and is currently priced at $1196.36? Round your answer to the nearest whole percent. Coupons are paid annually. Calculate the YTM if the price is $850.61. Finally, calculate YTM if the price is $1000.00.

Answer 1

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =20

850.61 =∑ [(10*1000/100)/(1 + YTM/100)^k]     +   1000/(1 + YTM/100)^20

k=1

YTM% = 12

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =20

1000 =∑ [(10*1000/100)/(1 + YTM/100)^k]     +   1000/(1 + YTM/100)^20

k=1

YTM% = 10