Question

You are purchasing a bond that currently sold for $985.63. it has the time-to-maturity of 10 years and a coupon rate of 6%, paid semi-annually. The bond can be called for $1,020 in 3 years. What is the yield to maturity of this bond?

Answer 1

YTM = 3.094%

Step-by-step explanation:

If you can't calculate the YTM using excel or a financial calcualtor, you can do it by hand using the approximation formula:

`YTM = (C + (F-P)/(n ))/((F+P)/(2))`

C = interest payment = 1,000 x 6%/2 = 30

F = face value = 1,000

P = 985,63

n = payment periods = 10 years x 2 payment per year

`YTM = (30+ (1000-958.63)/(20 ))/((1000+958.63)/(2))`

YTM = 3.094%

Notice, this YTM is an approximation