Question

What is the yield-to-maturity (YTM) of a bond that has a current price of $ 1,029, coupon rate of 7.03%, $ 1,000 par value, interest nald semi-anninalivi and 27 years to maturity?

Answer 1

The yield-to-maturity (YTM) of a bond can be calculated using the formula, YTM = [(Coupon Payment + (Par Value - Current Price) / Number of Years to Maturity) / ((Par Value + Current Price) / 2)] * 100. In this case, the YTM of the bond is approximately 3.32%.

Step-by-step explanation:

The yield-to-maturity (YTM) of a bond can be calculated using the formula:

YTM = [(Coupon Payment + (Par Value - Current Price) / Number of Years to Maturity) / ((Par Value + Current Price) / 2)] * 100

In this case, the bond has a coupon rate of 7.03%, a par value of $1,000, a current price of $1,029, a semi-annual interest payment, and 27 years to maturity. Plugging these values into the formula, we can calculate the YTM as follows:

1. First, calculate the coupon payment per period. Since the bond has a semi-annual interest payment, the coupon payment per period is (Coupon Rate / 2) * Par Value = (7.03% / 2) * $1,000 = $35.15.
2. Next, calculate the difference between the par value and the current price, which is $1,000 - $1,029 = -$29.
3. Then, divide the difference by the number of years to maturity, which is -$29 / 27 = -$1.07.
4. After that, calculate the sum of the par value and the current price, which is $1,000 + $1,029 = $2,029.
5. Finally, plug these values into the YTM formula: YTM = [($35.15 + (-$1.07)) / ($2,029 / 2)] * 100.

After performing the calculations, the yield-to-maturity of the bond is approximately 3.32%.