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

Finance Aug 19, 2020

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.)

Expert Solution

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%

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