Question

What is the approximate yield to maturity and the exact yield to maturity (use a calculator) for the $1,000 semi-annual bond? Assume this is issued in the United States: 10 years to maturity, 6 percent coupon rate, current price is $950.

Answer 1

6.67% and 6.694%

Step-by-step explanation:

The computation of the approximate yield to maturity and the exact yield to maturity is shown below:

For Approximate yield to maturity it is

= 2 × ((Face value - current price) ÷ (2 × time period) + face value × coupon rate ÷ 2) ÷ (Face value + current price) ÷ 2)

=2 × (($1,000 - $950) ÷ (2 × 10) + $1,000 × 6% ÷ 2) ÷ (($1,000 + $950) ÷ 2)

= 6.67%

Now

the Exact yield to maturity is

= RATE(NPER,PMT,-PV,FV)

= RATE (10 × 2, 6% × $1000 ÷ 2,-$950,$1,000) × 2

= 6.694%