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28 September, 14:09

Broke Benjamin Co. has a bond outstanding that makes semiannual payments with a coupon rate of 5.7 percent. The bond sells for $962.62 and matures in 13 years. The par value is $1,000. What is the YTM of the bond

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  1. 28 September, 16:40
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    Answer: 0.06101 = 6.101%

    The yield to maturity of the bond is

    6.101%

    Explanation:

    Using YTM formula below

    YTM = C + (fv - pv) / n : (fv + pv) / 2

    C = coupon rate = 5.7% of par value

    5.7/100 * 1000

    = $57

    pv = price value = $962.62

    Fv = face value / par value = $1000

    n = number of years to maturity = 13

    Using above formula

    C + (fv - pv) / n =

    57 + (1000 - 962.62) / 13

    57 + (37.38) / 13 = 59.8753846

    (fv + pv) / 2 =

    (1000 + 962.62) / 2

    = 1962.62 / 2 = 981.31

    YTM = C + (fv - pv) / n : (fv + pv) / 2

    YTM = 59.8753846 / 981.31

    YTM = 0.06101

    (to percentage) = 6.101%
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