Question

You just purchased a $1,000 par bond with a 6% semi-annual coupon and 15 years to maturity at par. You are hoping that interest rates fall and that you will be able to sell the bond in seven years at a price $1,200. What will the yield to maturity of the bond have to be to get the price you want in seven years

Answer 1

3.16%

Step-by-step explanation:

We use the RATE formula to find out the yield to maturity i.e be to be shown in the attachment below:

Given that,

Present value = $1,200

Future value or Face value = $1,000

PMT = 1,000 × 6% ÷ 2 = $30

NPER = 15 years - 7 years = 8 years × 2 = 16 years

The formula is shown below:

= Rate(NPER;PMT;-PV;FV;type)

The present value come in negative

After applying the above formula, the yield to maturity is

= 1.58% × 2

= 3.16%