The following U.S. Treasury bond is listed in the The Wall Street Journal: Rate Mo/Yr Bid Asked 9.50 Oct 38 135:30 136:04 This $

Question

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The following U.S. Treasury bond is listed in the The Wall Street Journal: Rate Mo/Yr Bid Asked 9.50 Oct 38 135:30 136:04 This $

1,000 par value bond has 18 years to maturity and makes semi-annual coupon interest payments. If you purchased this bond, what would be the bond's yield to maturity

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1 answer:

STatiana [176] · Answer 1 · 2021-11-21T15:05:19+03:00

Answer:

6.35%

Explanation:

If you purchase this bond you will need to pay $1,000 x 136.04% = $1,360.40

the coupon rate is 9.5% / 2 = 4.75% or $47.50 every six months

the bond matures in 18 years or 36 semiannual periods

yield to maturity = {coupon + [(face value - market value)/n]} / [(face value + market value)/2]

YTM = {47.5 + [(1,000 - 1,360.4)/36]} / [(1,000 + 1,360.4)/2]

YTM = 37.49 / 1,180.2 = 0.031766 x 2 (annual yield) = 0.06353 = 6.35%