Question

UULU: 6. A company issued a 25-year bond two years ago at a coupon rate of 5.3 percent. The bond makes semiannual coupon payments. If the bond currently sells for 105 percent of its par value of $1,000, what is the YTM? 7 Bond y molocomionou

Answer 1

Face Value = $1,000

Current Price = 105% * $1,000
Current Price = $1,050

Annual Coupon Rate = 5.30%
Semiannual Coupon Rate = 2.65%
Semiannual Coupon = 2.65% * $1,000
Semiannual Coupon = $26.50

Time to Maturity = 23 years
Semiannual Period to Maturity = 46

Let semiannual YTM be i%

$1,050 = $26.50 * PVIFA(i%, 46) + $1,000 * PVIF(i%, 46)

Using financial calculator:
N = 46
PV = -1050
PMT = 26.50
FV = 1000

I = 2.467%

Semiannual YTM = 2.467%
Annual YTM = 2 * 2.467%
Annual YTM = 4.93%