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5 November, 08:45

What is the yield to maturity of a eight -year, $ 10 comma 000 bond with a 4.5 % coupon rate and semiannual coupons if this bond is currently trading for a price of $ 8 comma 840 ?

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  1. 5 November, 11:19
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    yield to maturity is 6.37%

    Explanation:

    Face value (FV) : $10,000

    Coupon rate: 4.5% - > counpon received semi-annually = $10,000 * 4.5%/2 = $225 (PMT)

    Tenor: 8 years - > number of payments (NPer) : 16

    The price of bond today is $8,840 (PV)

    We can use excel to calculate the rate as YTM (yeild to maturity)

    = Rate (Nper, PMT,-PV, FV) = rate (16,225,-8840,10000)

    = 3.19% (semi-annual)

    -> annual rate or YTM = 6.37%
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