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viktelen [127]
3 years ago
10

You just purchased a bond that matures in 5 years. The bond has a face value of $1,000 and an 8% annual coupon. The bond has a c

urrent yield of 8.21%. What is the bond's yield to maturity?
Business
1 answer:
Luda [366]3 years ago
8 0

Answer:

Your answer is given below:

Explanation:

Information provided:

Face value= future value= $1,000

Time= 5 years

Coupon rate= 8%

Coupon payment= 0.08*1,000= $80

Current yield= 8.21%

Current yield is calculated using the below formula:

Current Yield= Annual interest/Current price

0.0821= $80/ Current price

Current price= $80/ 0.0821

                        = $974.42

The yield to maturity is calculated by entering the below in a financial calculator:

FV= 1,000

PV= -974.42

N= 5

PMT= 80

Press the CPT key and I/Y to compute the yield to maturity.

The value obtained is 8.6517.

Therefore, the yield to maturity is 8.65%.

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