Question

A 6.50% coupon bond with 18 years left to maturity is offered for sale at $1,035.25. What yield to maturity [interest rate] is the bond offering? Assume interest payments are paid semi-annually, and solve using semi-annual compounding. Par value is $1000.

Answer 1

Answer:

The yield to maturity is 6.3974%

Step-by-step explanation:

The computation of the yield to maturity is as follows

Given that

NPER = 18 × 2 = 36

PMT = $1,035.25 × 6.50% ÷ 2 = $33.65

PV = $1,035.25

FV = $1,000

The formula is shown below:

=RATE(NPER;PMT;-PV;FV;TYPE)

The present value comes in negative

AFter applying the above formula, the yield to maturity is

= 3.1987% × 2

= 6.3974%

Hence, the yield to maturity is 6.3974%