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?"

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%