Question

What is the yield to maturity on a bond that you purchased for $1,024, assuming that the bond has 18 years to maturity, a par value of $1,000, and a coupon rate of 4.10%

Answer 1

YTM = 0.039196 or 3.9196% rounded off to 3.92%

Step-by-step explanation:

The yield to maturity or YTM is the yield or return that an investor can earn on the bond if the bond is purchased today and is held till the bond matures. The formula to calculate the Yield to maturity of a bond is as follows,

YTM = [ ( C + (F - P / n)) / (F + P / 2) ]

Where,

• C is the coupon payment

• F is the Face value of the bond

• P is the current value of the bond

• n is the number of years to maturity

Coupon payment = 1000 * 0.041 = 41

YTM = [ (41 + (1000 - 1024 / 18)) / (1000 + 1024 / 2)

YTM = 0.039196 or 3.9196% rounded off to 3.92%