Question

What is the yield to maturity of a eight-year, $10,000 bond with a 4.6% coupon rate and semiannual coupons if this bond is currently trading for a price of $9,572? O A. 6.31% OB. 7.37% OC. 2.63% OD. 5.26%

Answer 1

YTM is calculated using RATE function in Excel with these inputs :

nper = 8*2 (8 years to maturity with 2 semiannual coupon payments each year)

pmt = 10000 * 4.6% / 2 (semiannual coupon payment = face value * annual coupon rate / 2. This is a positive figure as it is an inflow to the bondholder)

pv = -9572 (Current bond price. This is a negative figure as it is an outflow to the buyer of the bond)

fv = 10000 (face value of the bond receivable on maturity. This is a positive figure as it is an inflow to the bondholder)

The RATE calculated is the semiannual YTM. To calculate the annual YTM, we multiply by 2. Annual YTM is 5.26%

YTM of bond is 5.26%

A1 Х ✓ fic =RATE(8*2,10000*4.6%/2,-9572,10000)*2 B C D E F G H А 5.26% 1 2