Question

Muhtaseb Enterprises just issued a bond that matures in 30 years, 3.90% coupon rate paid semiannually, $1000 face value at a price of $1,111.00. What is the yield to maturity on this bond

Answer 1

the yield to maturity on this bond is 3.90 %

Step-by-step explanation:

The Yield to Maturity (YTM) is the interest rate that will make the present value of cash flows equal to the price or initial investment.

Use the time value of money techniques to find the yield to maturity on this bond as follows :

PV = - $1000

N = 30 × 2 = 60

PMT = ($1000 × 3.90%) ÷ 2 = $19.50

P/yr = 2

FV = $1000

YTM = ?

Using a Financial calculator to input the values as above, the yield to maturity on this bond will be 3.90 %.