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Chapter 4: Q.21 (page 134)

Consider a coupon bond that has a \(900 par value and a coupon rate of 6%. The bond is currently selling for \)860.15 and has two years to maturity. What is the bond鈥檚 yield to maturity?

Short Answer

Expert verified

Yield to maturity is 8.4%

Step by step solution

01

Step 1. Introduction

Bonds are debt instruments that are issued by governments or businesses to raise funds. Bu purchasign a bond, an invest lends money to the issuer. In return, the investor gets the principal amount along with the interest at the maturity of the bond.

02

Step 2. Explanation

YTM=C-Facevalue-PricenFacevalue+Price2=54-900-860.152900+8602=0.008399%=8.39%Approx=8.4%

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Most popular questions from this chapter

Suppose today you buy a coupon bond that you plan to sell one year later. Which part of the rate of return formula incorporates future changes into the bond鈥檚 price?

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