Question

The bond shown in the following table pays interest annually.

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Par value	Coupon interest rate	Years to maturity	Current value
​$100	12​%	20	​$130

Calculate the yield to maturity (YTM​) for the bond. Show formula

Answer 1

The Approximate Yield to Maturity Formula =[Coupon + ( Face Value - Market Price) / Number of years to maturity] / [( Face Value + Market Price)/2 ] *100

= [$ 12+ ( $ 100- $ 130) /20] /[( $ 100+ $ 130)/2] *100

= 10.5/ 115*100

=9.130434783%

Note : Coupon = Rate * Face Value

= 12% * $ 100

= $ 12

Since this formula gives an approximate value, the financial calculators can be used alternatively.

where,

Par Value = $ 100

Market Price = $ 130

Annual rate = 12% and

Maturity in Years = 20 Years

Hence the yield to maturity = 8.77%

Hence the correct answer is 8.77%