Question

DMC Inc. Is planning to issue a $1,000 face value bond with an annual coupon rate of 10% that matures in 20 years. DMC is planning to pay semiannual interest payments. Similar DMC bonds are quoting at 95% of par. What is yield to maturity for this bond?

Answer 1

Answer: 10.6%

Explanation:

Given the following :

Face value (FV) = $1000

Coupon rate (C) = 10% paid semianually

Time to maturity = 20 years ; number of periods =( 20 * 2) = 40 (Semi-annual)

Current trading price of bond = 95% * 1000 = $950

Payment per period = (10%) / 2 * 1000 = 0.05 * 1000 = 50

Inputting the parameters above into the the yield to maturity calculator with semiannual payment,

Yield to maturity (YTM) = 10.6%