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Homework answers / question archive / The market price is ?$875 for a 16?-year bond ?($1,000 par? value) that pays 9 percent annual? interest, but makes interest payments on a semiannual basis ?(4
The market price is ?$875 for a 16?-year bond ?($1,000 par? value) that pays 9 percent annual? interest, but makes interest payments on a semiannual basis ?(4.5 percent? semiannually). What is the? bond's yield to? maturity?
We can calculate the yield to maturity by using the following formula in excel:-
=rate(nper,pmt,-pv,fv)
Here,
Rate = Yield to maturity (semiannual)
Nper = 16*2 = 32 periods (semiannual)
Pmt = Coupon payment = $1,000*9%/2 = $45
PV = $875
FV = $1,000
Substituting the values in formula:
= rate(32,45,-875,1000)
= 5.32%
Yield to maturity = Rate * 2
= 5.32% * 2
= 10.64%
