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Homework answers / question archive / The market price is $850 for a 12-year bond ($1,000 par value) that pays 9 percent annual interest, but makes interest payments on a semiannual basis ?(4
The market price is $850 for a 12-year bond ($1,000 par value) that pays 9 percent annual interest, but makes interest payments on a semiannual basis ?(4.5 percent semiannually). The? bond's yield to maturity is
____________?%. ? (Round to two decimal? places.)
We can calculate the yield to maturity by using the following formula in excel:-
=rate(nper,pmt,-pv,fv)
Here,
Rate = Yield to maturity (semiannual)
Nper = 12*2 = 24 periods (semiannual)
Pmt = Coupon payment = $1,000*9%/2 = $45
PV = $850
FV = $1,000
Substituting the values in formula:
= rate(24,45,-850,1000)
= 5.66%
Yield to maturity = Rate * 2
= 5.66% * 2
= 11.32%
