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vovangra [49]
3 years ago
14

What is the yield to maturity of a bond if the bond is sold at $985.48 today, pays annual coupon of 7% and matures in 12 years?

Round to the nearest hundredth percent. Do not include a percent sign in your answer. (i.e. If your answer is 4.32%, then type 4.32 without a % sign)
Business
1 answer:
AveGali [126]3 years ago
7 0

Answer:

Explanation:

  • The Yield to Maturity [YTM] of a Bond is calculated by using the following formula = Yield to Maturity [YTM] = Coupon Amount + [ (Face Value – Bond Price) / Maturity Years] / [(Face Value + Bond Price)/2]

  • Where, Coupon amount = $1000  x 7% x ½ = $35

  • Face Value = $1,000

  • Bond Price = $985.48

  • Maturity Years = 12 years x 2 = 24 Periods

  • Yield to Maturity [YTM] = Coupon Amount + [ (Face Value – Bond Price) / Maturity Years] / [(Face Value + Bond Price)/2]

  • = $35 + [ ($1,000 – $985.48) / 24 Years)] / [($1,000 + $985.48) / 2]

  • = [($35 – 0.605) / 992.74] x 100 = 3.46%

The Yield-to-Maturity (YTM) of this Bond = 3.46%

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