A 7.5 percent corporate bond matures morning in 16 years and has a price quote of...

Question

Question

A 7.5 percent corporate bond matures morning in 16 years and has a price quote of 102.3. What is the yield to maturity?

Answer 1

Answer #1

Face Value = $1,000

Price Quote = 102.3
Current Price = 102.3% * $1,000
Current Price = $1,023

Annual Coupon Rate = 7.50%
Semiannual Coupon Rate = 3.75%
Semiannual Coupon = 3.75% * $1,000
Semiannual Coupon = $37.50

Time to Maturity = 16 years
Semiannual Period = 32

Let semiannual YTM be i%

$1,023 = $37.50 * PVIFA(i%, 32) + $1,000 * PVIF(i%, 32)

Using financial calculator:
N = 32
PV = -1023
PMT = 37.50
FV = 1000

I = 3.627%

Semiannual YTM = 3.627%
Annual YTM = 2 * 3.627%
Annual YTM = 7.25%

Answer 2

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