A bond with 20 years remaining until maturity is currently trading for $1,110 per $1000 of par value

Finance Dec 09, 2020

A bond with 20 years remaining until maturity is currently trading for $1,110 per $1000 of par value. the bond offers a 5% coupon rate with interest paid semiannually. What is the bond's annual yield-to maturity?

Expert Solution

Face Value of Bond = $1000

Semi-annual coupon payment = $1000*5%*1/2 = $25

No of coupon Payment = No of years to maturity*2 = 20 years*2

= $40

Current Price = $1110

Calculating the Semi-Annual Yield to maturity of Bond using the Excel "RATE" function:-

Semi-Annual Yield to maturity = 2.0914%

Annual Yield to maturity = 2.0914%*2

Annual Yield to maturity = 4.18%

So, the bond's annual yield-to maturity is 4.18%

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