A bond is currently selling in the market for $ 1,170

Finance Jan 18, 2021

A bond is currently selling in the market for $ 1,170. It has a coupon of 12% with 15 years maturity that pay annual interest payment. Calculate the yield to maturity for the bonds.

Expert Solution

Computation of Yield to Maturity of the Bonds using Rate Function in Excel:

=rate(nper,pmt,-pv,fv)

Here,

Rate = Yield to Maturity = ?

Nper = 15 years

PMT = $1,000*12% = $120

PV = $1,170

FV = $1,000

Substituting the values in formula:

=rate(15,120,-1170,1000)

Rate or Yield to Maturity = 9.79%

So, Yield to Maturity of the Bonds is 9.79%.

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