Question

At&T 10 year, 6% annual coupon rate, 1,000 par value bond is selling at $1,200. Interest on this bond is paid annually. Calculate both approximate yield maturity and exact yield to maturity.

Answer 1

Approximate Yield to maturity is calculated as follows:
Approximate Yield to maturity	=	Average income	/	Average investment
	=	$          40.00	/	$    1,100.00
	=	3.64%
Working:
Average income	=	(C+((F-P)/n))		Where,
	=	(60+((1000-1200)/10))		C	=	Annual coupon payment	=	1000*6%	=	$                 60.00
	=	$          40.00		F	=	Maturity value			=	$           1,000.00
				P	=	Current price			=	$           1,200.00
				n	=	Time			=	10
Average Investment	=	(F+P)/2
	=	(1000+1200)/2
	=	$    1,100.00
Exact Yield to maturity	=	=rate(nper,pmt,-pv,fv)		Where,
	=	3.58%		nper	=	Time	=	10
				pmt	=	Coupon Payment	=	$              60.00
				pv	=	Current price	=	$        1,200.00
				fv	=	Maturity value	=	$        1,000.00