The $1,000 face value bonds of Galaxies International have coupon of 6.45 percent and pay interest semiannually. Currently, the bonds are quoted at 103.4 and mature in 4 years. What is the yield to maturity?

YTM = 52%

Explanation:

F = face value of bond = 1000

Price of bond = 103.4

t = 4 years = 4 * 2 = 8 periods for semi annual coupon payments.

Coupon rate = 6.45% = 6.45%=.0645

n=number of years to maturity = 4 years

C = coupon payment = 1000 * coupon rate = 1000 * 6.45% = 64.6

Formula: YTM = [C + (F-P/n) ] / (F+P) / 2

= [64.5 + (1000-103.4) / 4] / [ (1000+103.4) / 2]

= 288.6/551.7

YTM = 52%

the yield to maturity is 5.49%

Explanation:

Consider the following calculations

Yield to Maturity = [Interest + (Price - Redeemable Value) / n] / (Price + Redeemable Value) / 2 = [32.25 + (1034 - 1000) / 8] / (1034 + 1000) / 2 = 2.745% semi-annually

Annually = 2.745 x 2 = 5.49%.