A bond that has an 8% coupon and makes semi?annual payments has a $1,000 face value and 10 years to maturity

Finance Jan 15, 2021

A bond that has an 8% coupon and makes semi?annual payments has a $1,000 face value and 10 years to maturity. It is currently selling for $770.60. Find this bond’s yield?to?maturity.

Expert Solution

Answer :

Calculation :

Yield to maturity can be calculated using Rate function of Excel

=RATE(nper,pmt,pv,fv)

where nper is the number of years i.e 20 (10*2 = 20 . Multiplied by 2 as it has semi annual payment)

pmt = 40 (1000*8% = 80/2 = 40. Divided by 2 as it has semi annual payment)

pv = price of bond i.e 770.60

fv = face value i.e 1000

=RATE(20,40,-770.60,1000)

Onsolving

We will get Yield to maturity equals to 6.00%

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