Question

Bond Yields Find the promised yield to maturity for a 9% coupon, $1,000 par 30 year bond selling at $1045.70. The bond makes semiannual coupon payments.

8.09%

8.64%

8.57%

8.79%

Answer 1

Information provided:

Face value= future value= $1,000

Time= 30 years*2= 60 semi-annual periods

Coupon rate= 9%/2= 4.5%

Coupon payment= 0.045*1,000= $45

Current price= present value= $1,045.70

The yield to maturity is calculated by entering the below in a financial calculator:

FV= 1,000

N= 60

PMT= 45

PV= 1,045.70

Press the CPT key and I/Y to compute the yield to maturity.

The value obtained is 4.2869.

Therefore, the yield to maturity is 4.2869%*2= 8.5738%     8.57%.

Hence, the answer is option c.

In case of any query, kindly comment on the solution.