Question

Helen Martin is looking to invest in a three-year bond that makes semi-annual coupon payments at a rate of 5.775 percent. If these bonds have a market price of $981.68, what yield to maturity can she expect to earn? (Round intermediate calculations to 5 decimal places, e.g. 1.25145 and final answer to 2 decimal places, e.g. 15.25%.)

Answer 1

The yield to maturity is 6.46% annually

Step-by-step explanation:

The yield to maturity on the bond can be computed using the rate formula in excel as given below:

=rate(nper,pmt,-pv,fv)

nper is the number of interest payments the bond would make which is 3*2=6

pmt is the semi-annual interest payment of the bond which is 5.775%/2*$1000=$28.88

pv is the current market price of the bond at $981.68

fv is the face value of the bond at $1000

=rate(6,28.88,-981.68,1000)

rate=3.23% semi-annually

rate=6.46%(3.23%*2) annually