Question

A Friend asks you to calculate the YTM of a bond . He tells you it is selling for 80 % of its $ 1000 par value and it matures in 12 years with an annual coupon of 3.2 % .

A friend asks you to calculate the YTM of a bond. He tells you it is selling for 80% of its $1000 par value and it matures in 12 years with an annual coupon of 3.2% 5.52% 5.12% 6.43% 4.56%

Answer 1

Par value or face value=$1000
Given that the bond is selling for 80% of par value.
So, present value=80%*1000=800
Time period=12 years
Coupon rate=3.2%
Coupon payment=(Coupon rate)*(Face value)=3.2%*1000=32
We can use excel to determine the value of yield to maturity (YTM).

32 1 Face value 1000 2 Payment 3 Number of periods 12 4 Present value -800 5 Yield to maturity 5.52% 6 Formula used: RATE(V3,V2, V4, V1)

So, the value of YTM=5.52%