Question

Ruth Lewis is looking to invest in a three-year bond that makes semi-annual coupon payments at a rate of 5.825 percent. If these bonds have a market price of $985.63, what yield to maturity can she expect to earn

Answer 1

Answer:

The question is missing the par value of the Bond, tried searching online but i could not find it.

A Bond`s yield to maturity is the same as the Internal Rate of Return. It is the interest rate that will make the present value of cash flows equal to the price or initial investment. To calculate the Bond`s Yield to Maturity (YTM), we must have the Bond`s Par Value (this is missing), Year to Mature, Coupon Payment, Market Price.

Using a financial calculator, you enter the parameters as follows to calculate the YTM,

PV = $985.63

PMT = 5.825 % of par value

Period per year = 2

N = 3

FV = missing

YTM = ?

With just those steps and finally pressing I/YR button on your financial calculator you will get the yield to maturity that Ruth Lewis can  expect to earn.