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

Finance Oct 10, 2020

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?

Expert Solution

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%

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