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28 June, 11:25

Helen Martin is looking to invest in a three-year bond that makes semi-annual coupon payments at a rate of 5.775 percent. If these bonds have a market price of $981.68, what yield to maturity can she expect to earn? (Round intermediate calculations to 5 decimal places, e. g. 1.25145 and final answer to 2 decimal places, e. g. 15.25%.)

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  1. 28 June, 11:36
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    The yield to maturity is 6.46% annually

    Explanation:

    The yield to maturity on the bond can be computed using the rate formula in excel as given below:

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

    nper is the number of interest payments the bond would make which is 3*2=6

    pmt is the semi-annual interest payment of the bond which is 5.775%/2*$1000=$28.88

    pv is the current market price of the bond at $981.68

    fv is the face value of the bond at $1000

    =rate (6,28.88,-981.68,1000)

    rate=3.23% semi-annually

    rate=6.46% (3.23%*2) annually
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