Question

5ms noncallable bonds currently sell for $1,120. they have a 15 year maturity, an annual coupon of $85, an a par value of $1000. what is their yield-to-maturity

Answer 1

Yield to maturity is 7.168%

Step-by-step explanation:

The actual return that an investor earn on a bond until its maturity is called the Yield to maturity. It is a long term return which is expressed in annual rate.

We will use the following formula to calculate the Yield to maturity.

Value of Bond = C x ( 1 - ( 1 + YTM )^-n / YTM ) + F / ( 1 + YTM )^n

$1,120 = $85 x ( 1 - ( 1 + YTM )^-15 / YTM ) + $1,000 / ( 1 + YTM )^15

YTM = 0.07168 = 7.168%