There is a bond that has a quoted price of 107.793 and a par value of $2,000. The coupon rate is 6.96 percent and the bond matures in 22 years. If the bond makes semiannual coupon payments, what is the YTM of the bond?
The Yield to maturity of (YTM) of the Bond
The Yield to maturity of (YTM) of the Bond is the discount rate at which the Bond’s price equals to the present value of the coupon payments plus the present value of the Face Value/Par Value
Variables |
Financial Calculator Keys |
Figure |
Par Value/Face Value of the Bond [$2,000] |
FV |
2,000 |
Coupon Amount [$2,000 x 6.96% x ½] |
PMT |
69.60 |
Market Interest Rate or Yield to maturity on the Bond |
1/Y |
? |
Maturity Period/Time to Maturity [22 Years x 2] |
N |
44 |
Bond Price [-$2,000 x 107.793%] |
PV |
-2,155.86 |
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 = 3.15%.
The semi-annual Yield to maturity = 3.15%.
Therefore, the annual Yield to Maturity of the Bond = 6.30% [3.15% x 2]
“Hence, the Yield to maturity of (YTM) of the Bond will be 6.30%”
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