Question

DDJ just issued an 8-year bond. The bond makes semi-annual coupon payments based on annual coupon rate of 6%. If the bond is trading at $1,125.25, what is the bond’s yield to maturity?

Question 29 options:

	2.07%
	2.01%
	5.14%
	5.97%
	None of the above

Answer 1

Information provided:

Face value= future value= $1,000

Market price= present value= $1,125.25

Time= 8 years*2= 16 semi-annual periods

Coupon rate= 6%/2= 3%

Coupon payment= 0.03*1,000= $30

The yield to maturity is calculated by entering the below in a financial calculator:

FV= 1,000

PV= -1,125.25

N= 16

PMT= 30

Press the CPT key and I/Y to compute the yield to maturity.

The value obtained is 2.0722

Therefore, the yield to maturity is 2.0722%*2= 4.1444% 4.14%.

Hence, the answer is option e.

In case of any query, kindly comment on the solution.