Question

QUESTION 4 Gilead Sciences has 20 year bond with par value of 1,000 and a 6.55% coupon (coupon payments are semiannual). The current price is $965,45. What is the yield to maturity of this bond? Be sure to report this as a raw number ( don't write it as a decimal and don't include a symbolle. 5.5% should be entered as 5.5, not 0.055 ) and on an annualized basis.

Answer 1

Current Price = 965.45

Coupon 6.55%/ 2 = 3.275

Maturity = 20 years * 2 = 40

Let's assume the YTM be 6%

Value of Bond = $\small Coupon *\frac{1-\frac{1}{(1+r)^{n}}}{r} + \frac{Maturity Value}{(1+r)^{n}}$

=

1- 32.75 多 (1+0.03 110 0.03 + 1000 (1+0.03140

= 1063.56562293

Now,

Let's assume the YTM be 7%

Value of Bond = $\small Coupon *\frac{1-\frac{1}{(1+r)^{n}}}{r} + \frac{Maturity Value}{(1+r)^{n}}$

= $\small 32.75 *\frac{1-\frac{1}{(1+0.035)^{40}}}{0.035} + \frac{1000}{(1+0.035)^{40}}$

= 951.951087231

YTM = $\small Lower Rate + (\frac{Surplus}{Surplus + deficit}) * (Higher Rate - Lower rate)$

= 6% + ((1063.56562293 - 965.45) / (1063.56562293 - 965.45) + (965.45 - 951.951087231 )) * (7-6)

= 6% + (98.11562293 / (98.11562293) + (13.498912769)) * 1

= 6.87%

NOTE: The answer to your question has been given below/above. If there is any query regarding the answer, please ask in the comment section. If you find the answer helpful, do upvote. Help us help you.