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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? Assume interest payments are paid semi-annually, and solve using semi-annual compounding. Par value is $1000.
Expert Solution
Computation of Yield to Maturity using Rate Function in Excel:
=rate(nper,pmt,-pv,fv)
Here,
Rate = Yield to Maturity = ?
Nper = 18 years*2 = 36 Periods
PMT = $1,000*6.50%/2 = $32.50
PV = $1,035.25
FV = $1,000
Substituting the values in formula:
=rate(36,32.50,-1035.25,1000)
Rate or Yield to Maturity = 6.17%
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