Question

There is a corporate bond in the market that is selling for $1,350.82 each, stated rate of interest of 8.15% with a maturity of 7 years. What is the yield-to-maturity (YTM) of this bond? a. 5.26% b. 0.66% c. 2.63% d. 1.31%

Answer 1

c.2.63%

Difference in second place of decimal is due to rounding off difference.

Yield to maturity		=	Average income		/	Average Investment
		=	(C+(P1-P0)/n)		/	((P0+P1)/2)
		=	(81.50+(1000-1350.82)/7)		/	((1350.82+1000)/2)
		=	31.38286		/	1175.41
		=	2.67%
Working:
C		=	Annual coupon	=	$       81.50
P0		=	Current price	=	$ 1,350.82
P1		=	Maturity value	=	$ 1,000.00
n		=	Time	=	7