Question

You notice in the WSJ a bond that is currently selling in the market for ​$1,081 with a coupon of 12​% and​ a(n) 18​-year maturity. Using annual​ compounding, calculate the promised yield on this bond.

The​ bond's promised yield is (blank) percent ? *round to two decimal places*

Answer 1

Face Value = $1,000
Current Price = $1,081

Annual Coupon Rate = 12%
Annual Coupon = $1,000 * 12%
Annual Coupon = $120

Time to Maturity = 18 years

Let Annual YTM be i%

$1,081 = $120 * PVIFA(i%, 18) + $1,000 * PVIF(i%, 18)

Using financial calculator:
N = 18
PV = -1,081
PMT = 120
FV = 1,000

I = 10.95%

Annual YTM = 10.95%