Question

What is the yield to maturity of a bond that as a face value of $1,000, is currently selling for $980, has a 5% coupon (paid semi-annually) and matures in 5 years.

Answer 1

5.47%

Explanation:

The computation of yield to maturity is shown in the attachment:

Given that

FV = $1000

PV = ($980)

PMT = 5% ÷ 2 × 1,000 = $25

Number of years = 5 years × 2 = 10 Years

The formula is shown below:

= Rate(NPER;PMT;-PV;FV;type)

The present value come in negative

So, after applying the above formula, the yield to maturity is

= 2.73 × 2

= 5.46%

Therefore with the help of spreadsheets (as attached), we could explain in a better manner.