Question

15-year bonds 2 years ago at a coupon rate of 7.3 percent. The bonds make semiannual payments. If these bonds currently sell for 103 percent of par value, what is the YTM?

Answer 1

The answer is 6.95%

Step-by-step explanation:

We are looking for Yield-to-maturity (YTM). YTM can also be called rate of return or discount rate.

Note: The 15 -year bond was bought 2 years ago, meaning it remains 13 years

N(Number of periods) = 26 years ( 13years x 2)

I/Y(Yield to maturity) = ?

PV(present value or market price) = $103

PMT( coupon payment) = $3.65( [(7.3percent ÷ 2)x $100)]

FV( Future value or par value) = $100

We are using a Financial calculator for this.

N= 26; PMT = 3.65; FV= $100; CPT PV= -103, CPT I/Y

I/Y = 3.47.

3.47% is for semiannual rate

Therefore, annual rate is 6.95% (3.47% x 2)