Question

. Dizzy Corp. bonds bearing an annual coupon rate of 8%, pay coupons semiannually, have 3 years remaining to maturity, and are currently priced at $857 per bond. What is the yield to maturity

Answer 1

YTM = 0.06874 or 6.874% rounded off to 6.87%

Step-by-step explanation:

The yield to maturity or YTM is the yield per year that a bond is expected to provide if it is purchased today and is held till maturity. The formula to calculate the YTM of a bond is attached.

The par value of the bond is $1000.

The coupon per period = 1000 * 0.08 * 1/2 = 40

Number of semi annual periods = 3 * 2 = 6

YTM = [ (40 + (1000 - 857)/6) / (1000 + 857)/2 ]

YTM = 0.06874 or 6.874% rounded off to 6.87%