Question

The bonds issued by the south foot bear a coupon rate of 7.5 percent, payable semiannually. the bonds mature in 6.5 years, sell at par, and have a $1,000 face value. what is the yield to maturity

Answer 1

Answer: 7.5%

Explanation:

Given the following :

Coupon rate = 7.5% semi-annually = 0.0375

Coupon or interest payment per period = $37.5

Period (n)= 6.5 years * 2 = 13

Face value(f) = $1000

Price of bond = face value = $1000

Semiannual Yield to maturity = [(((f-p)/n) + C) / (f + p)/2]

Semiannual YTM = [(((1000 - 1000) / 13) + 37.5) / (1000 + 1000)/2]

Semiannual Yield to maturity = [(((0 /13) + 37.5) / 2000/2]

= 37.5 / 1000 = 0.0375 = 3.75%

Yield to maturity = 2 × Semiannual yield to maturity

Yield to maturity = 2 × 3.75% = 7.5%