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10 November, 13:20

Crossfade Corp. has a bond with a par value of $2,000 that sells for $1,910.50. The bond has a coupon rate of 7.05 percent and matures in 19 years. If the bond makes semiannual coupon payments, what is the YTM of the bond

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  1. 10 November, 13:32
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    Yield to maturity of the bond is 7.5%

    Explanation:

    Yield to maturity is the annual rate of return that an investor receives if a bond bond is held until the maturity.

    Face value = F = $2,000

    Coupon payment = $2,000 x 7.05% = $141/2 = $70.5 semiannually

    Selling price = P = $1910.50

    Number of payment = n = 19 years x 2 = 38

    Yield to maturity = [ C + (F - P) / n ] / [ (F + P) / 2 ]

    Yield to maturity = [$70.5 + (2,000 - 1,910.50) / 38 ] / [ (2,000 + 1,910.50) / 2 ]

    Yield to maturity = 72.86 / $1,955.25

    Yield to maturity = 3.73% Semiannual

    Yield to maturity = 7.5% annually
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