What is the YTM of a bond with a 2% semi-annual coupon,10 years until maturity, and...

Question

Question

What is the YTM of a bond with a 2% semi-annual coupon,10 years until maturity, and a price of $970?

Answer 1

Answer #1

Face Value = $1,000
Current Price = $970

Annual Coupon Rate = 2.00%
Semiannual Coupon Rate = 1.00%
Semiannual Coupon = 1.00% * $1,000
Semiannual Coupon = $10

Time to Maturity = 10 years
Semiannual Period to Maturity = 20

Let Semiannual YTM be i%

$970 = $10 * PVIFA(i%, 20) + $1,000 * PVIF(i%, 20)

Using financial calculator:
N = 20
PV = -970
PMT = 10
FV = 1000

I = 1.169%

Semiannual YTM = 1.169%
Annual YTM = 2 * 1.169%
Annual YTM = 2.338% or 2.34%

Answer 2

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