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23 June, 22:27

A Treasury bond that settles on August 10, 2016, matures on September 27, 2021. The coupon rate is 4.6 percent and the quoted price is 107:7. What is the bond's yield to maturity? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

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  1. 23 June, 22:57
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    3.09%

    Explanation:

    Yield to maturity = [C + ((F - P) / n) ] / [ (F + P) / 2]

    Face value = $1,000

    C = Coupon or interest payment = $1,000 * 4.6% = $46

    P = quoted price = $1,000 * 107% = $1070

    n = Years to maturity = 5

    Therefore, we have:

    Yield to maturity = [46 + ((1,000 - 1,070) / 5) ] / [ (1,000 + 1,070) / 2] = 0.0309. or 3.09%
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