Question

Chegg "​(Yield to​ maturity)  A​ bond's market price is ​$725. It has a ​$1000 par​ value, will mature in 14 ​years, and has a coupon interest rate of 12 percent annual​ interest, but makes its interest payments semiannually. What is the​ bond's yield to​ maturity? What happens to the​ bond's yield to maturity if the bond matures in 28 ​years? What if it matures in 7 ​years?"

Answer 1

Answer:

17.26%

YTM falls to 16.62%

YTM rises to 19.34%

Explanation:

The bond yield to maturity is the computed using excel rate formula given below:

=rate(nper,pmt,-pv,fv)

nper is the number of semiannual coupons the bond has i.e 14*2=28

pmt is the semiannual coupon of the bond=$1000*12%/2=$60

pv is the current market price of $725

fv is the face value of $1000

=rate(28,60,-725,1000)=8.63%

The 8.63%  is semiannual yield , the annual yield=8.63% *2=17.26%

28 years:

=rate(28*2,60,-725,1000)=8.31% *2=16.62%

7 years:

=rate(7*2,60,-725,1000)=9.67%*2=19.34%