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People Window Help Take a Test-Patrick Quigley Secure | https://www.mathxl.com/Student/PlayerTest.aspx?testid=172973966&centerwin.; FINC 300 (01): Fall 2017 Test: Exam 2 Submit Tes This Question: 3 pts 17 of 30 (1 complete) his Test 100 pts possi Question Help (Related to Checkpoint 9.2) (Yield to maturity) The market price is $925 for a 12-year bond ($1,000 par value) that pays 9 percent annual interest, but makes interest payments on a semiannual basis (4.5 percent semiannually). What is the bond's yield to maturity? The bond's yield to maturity is %. (Round to two decimal places.) Enter your answer in the answer box.

Explanation / Answer

YTM ( Approx) = (Coupon + ( Face Value - Price) / Number of years to maturity) / (Face Value + Price)/2

Coupon = $1,000 * 4.5% = $45

YTM = ($45 + ($1000 - $925) / 24) / ($1000 + $925)/2

= 48.125 / 962.5

= 5%

Bond Price at 5% = $45 * (PVAF , 5%,24) + $1,000 * (PVF,5%,24)

= $931

Bond Price at 6% = $45 * (PVAF , 6%,24) + $1,000 * (PVF,6%,24)

= $811.74

So the YTM Exists between 5% and 6%

Exact YTM = 5% + ( $931 - $925) / 119.26 = 5.046 per period

YTM = 2*5.046 = 10.10% ( ~ 10.092%)

Therefore YTM = 10.10% per year

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