Question

A Tesla coupon bond with a face value of $1,000 has a coupon rate of 6% with annual coupons and it will mature in 5 years. If it is currently trading at $813.5, what is its yield-to-maturity? Round to the tenth of a percent (e.g., 4.32% = 4.3) [Hint: Use Excel's "rate" function as explained in the text. Make sure you set the cell to show decimal places.]

Answer 1

Face Value = $ 1000, Coupon Rate = 6 %, Annual Coupon = 0.06 x 1000 = $ 60, Tenure = 5 years

Current Price = $ 813.5

Let the yield to maturity be y

Therefore, 813.5 = 60 x (1/y) x [1-{1/(1+y)^(5)}] + 1000 / (1+y)^(5)

Using EXCEL's Rate Function to solve for the variable we get:

y = 0.11053 or 11.053 % ~ 11.05 %