Calculate the yield to maturity on the following bonds: A 9.4 percent coupon (pa

ID: 2818273 • Letter: C

Question

Calculate the yield to maturity on the following bonds:

A 9.4 percent coupon (paid semiannually) bond, with a $1,000 face value and 19 years remaining to maturity. The bond is selling at $965.

An 8.4 percent coupon (paid quarterly) bond, with a $1,000 face value and 10 years remaining to maturity. The bond is selling at $901.

An 11.4 percent coupon (paid annually) bond, with a $1,000 face value and 6 years remaining to maturity. The bond is selling at $1,051.

please show and explain all steps on a financial calculator as well

YTM = [Interest per period +((Face value-current market price)/periods remainin to maturity)] / [Face value*.4+current market price*.6]

Bond 1

YTM = [47 +((1000-965)/38)] / [(1000*.4+965*.6]

= (47+.9211)/979

= .0489

= 4.90%

Bond 2

YTM = [21 +((1000-901)/40)] / [(1000*.4+901*.6]

= (21+2.475)/940.6

= 23.475/940.6

= .0249

= 2.49%

Bond 3

YTM = [114 +((1000-1051)/6)] / [(1000*.4+1051*.6]

= (114-8.5)/1030.6

= 105.5/1030.6

= .1024

= 10.24%

Note: We can also use (Face value+current market price)/2 in denominator. But above equation will give more appropriate answer.

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