Evans Emergency Response bonds have 5 years to maturity. Interest is paid semian

Question

Evans Emergency Response bonds have 5 years to maturity. Interest is paid semiannually. The bonds have a $1,000 par value and a coupon rate of 9 percent.

If the price of the bond is $1,085.55, what is the annual yield to maturity? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

If the price of the bond is $1,085.55, what is the annual yield to maturity? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Explanation / Answer

Average Return per Half year per Bond = (90*5)+90/5=108

Approximate Half year return = 108/1085.55*100=9.94%

NPV at 9= 90*3.238+1000*.649-1085.55

                 =291.42+649-1085.55=( -) $ 145.13

NPV at 9% is negative it show that the return is less than 9

NPV at 5= 90*3.544+1000*0.783-1085.55

                 =318.96+680-1085.55=16.41

YTM ( Half Yearly )=rate of lower npv+ Lower Rate NPV/(Lowe rate NPV- Higher rate NPV)*Rate of difference

         = 5+16.41/16.41-(-)145.13*(9-5)

         = 5.10%

YTM (Annually) =5.10*2= 10.20%

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