Footsteps Co. has a bond outstanding with a coupon rate of 6.1 percent and annual payments. The bond currently sells for $976.23, matures in 25 years, and has a par value of $1,000. What is the YTM of the bond?
5.24%
6.25%
6.29%
6.10%
5.66%
The correct answer is 6.29%
Note :
The Approximate Yield to Maturity Formula =[Coupon + ( Face Value - Market Price) / Number of years to maturity] / [( Face Value + Market Price)/2 ] *100
= [ ( 6.1% * $ 1,000 ) + ( $ 1,000 - $ 976.23) / 25] / [ ( $ 1,000 + $ 976.23) / 2] *100
= 61.9508/ 988.115 *100
= 6.27%
Since this formula gives an approximate value, the financial calculators can be used alternatively.
where,
Par Value = $ 1,000
Market Price = $ 976.23
Annual rate = 6.1% and
Maturity in Years = 25 Years
Hence the yield to maturity = 6.29%
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