A 5% semiannual coupon bond maturing in 5 years with a par value of $100 is...

Question

Question

A 5% semiannual coupon bond maturing in 5 years with a par value of $100 is trading at $95. Calculate the yield to maturity.

Answer 1

Answer #1

YTM = Interest +(Face value -current market price/n) / (Face value + current market price/2)

Face value = 100$

here interest = 100 x 5% x 1/2 = 2.5$

n = no of compounding period = 5 x 2 = 10

Current market price = 95$

YTM = 2.5 +(100-95)/10 / (100+95)/2

=2.5 + (5/10) / (195/2)

=2.5 + 0.5 / 97.5

=3/97.5

=0.030769

i.e 3.0769%

Thus annual YTM = 3.00769% x 2

=6.1538%

Answer 2

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