Question

A 15-year, 8% coupon bond with a par value of $1,000 is currently trading at $958. The yield to maturity of this bond must be

Answer 1

8.51%

Step-by-step explanation:

Annual coupons= ($1000 * 8%)= $80

Approximate YTM = [Annual coupons+(Face value-Present value) / time period] / (Face value+Present value) /2

=[80+(1000-958)/15]/(1000+958)/2

= 80+2.8 / 979

= 82.8/979

= 0.0084576

= 8.4576%

=8.51%(Approx)

Thus, the yield to maturity of this bond is 8.51%.