Question

A bond has a market price of $900 and coupon interest rate of 10% p.a. The bond pays interest semi annually and has a face value of $1,000. The bond will mature in 10 years. Calculate the yield to maturity Rate for the bond.

Answer 1

To calculate the yield to maturity (YTM) for a bond, use the YTM formula, which takes into account the coupon payment, face value, bond price, and number of years. In this case, the YTM is 12%.

Step-by-step explanation:

To calculate the yield to maturity (YTM) for a bond, you can use the following formula:

YTM = (Coupon Payment + ((Face Value - Bond Price) / Number of Years)) / ((Face Value + Bond Price) / 2)

In this case, the coupon payment is $1000 * 0.10 = $100, the face value is $1000, and the bond price is $900. The number of years is 10. Plug these values into the formula:

YTM = ($100 + (($1000 - $900) / 10)) / (($1000 + $900) / 2) = 0.12, or 12%