Question

P9-7 (similar to) Question Help (Related to Checkpoint 9.2) (Yield to maturity) The market price is $1,175 for a 9-year bond ($1.000 par value) that pays 9 percent annual interest, but makes interest payments on a semiannual basis (4.5 percent semiannually). What is the bond's yield to maturity? The bond's yield to maturity is %. (Round to two decimal places)

Answer 1

Answer of P9-7:

Face Value = $1,000
Market Value = $1,175

Annual Coupon Rate = 9%
Semiannual Coupon Rate = 4.5%
Semiannual Coupon = 4.5% * $1,000
Semiannual Coupon = $45

Time to Maturity = 9 years
Semiannual Period to Maturity = 18

Let semiannual YTM be i%

$1,175 = $45 * PVIFA(i%, 18) + $1,000 * PVIF(i%, 18)

Using financial calculator:
N = 18
PV = -1,175
PMT = 45
FV = 1,000

I = 3.205%

Semiannual YTM = 3.205%
Annual YTM = 2 * 3.205%
Annual YTM = 6.41%

The bond’s yield to maturity is 6.41%