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A 6
A 6.50 percent coupon bond with 18 years left to maturity is offered for sale at $1,035.25. What yield to maturity [interest rate] is the bond offering?
Expert Solution
Computation of Yield to Maturity:
Yield to Maturity = (Coupon Amount + (Face Value-Bond Price)/n)/((Face Value + Bond Price)/2)
Here,
Coupon Amount = $1,000*6.5% = $65
Face Value = $1,000
Bond Price = $1,035.25
n = 18 years
Yield to Maturity = ($65 + ($1000-$1035.25)/18)/((1000+1035.25)/2)
= ($65 + (-1.9583))/$1017.625
= $63.04/$1,017.625
Yield to Maturity = 6.19%
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