Question

Uan zhang bought a 10-year bond that pays 8. 25 percent semiannually for $911. 10. what is the yield to maturity on this bond? (roundyour percentage answer to two decimal places. )

Answer 1

The yield to maturity on this bond according to the trial-and-error approach is 9.66 percent.

According to the statement

we have given that the Uan zhang bought a 10-year bond that pays 8. 25 percent interest per 6 months.

And we have to find that the yield to maturity on this bond.

So, For this purpose,

The amount given is $911. 10.

Years to maturity = n = 10

Coupon rate = C = 8.25%

Semiannual coupon = $1,000 × (0.0825/2) = $41.25

Yield to maturity = i

Present value of bond = PB = $911.10

Use the trial-and-error approach to solve for YTM. Since the bond is selling at a discount, we know that the yield to maturity is higher than the coupon rate.

Try YTM = 9.4%:

= $522.90 + 391.54 ≅ $914.43

The YTM is approximately 9.66 percent. Using a financial calculator provided an exact YTM of 9.656 percent (2 × 4.828%).

So, The yield to maturity on this bond according to the trial-and-error approach is 9.66 percent.

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