Question

A municipal bond with a coupon rate of 4.40 percent sells for $4,830 and has eight years until maturity. What is the yield to maturity of the bond? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Answer 1

Coupon Rate = 4.4 %, Par Value = $ 5000, Price = $ 4830, Tenure = 8 years

Annual Coupon = 0.044 x 5000 = $ 220

Let the yield to maturity be y

Therefore, 4830 = 220 x (1/y) x [1-{1/(1+y)^(8)}] + 5000 / (1+y)^(8)

Using EXCEL's Goal Seek Function/hit and trial method/a financial calculator to solve the above equation, we get:

y = 0.04924 or 4.924 % ~ 4.92 %