Calculate the yield to maturity on the following bonds:

1) An 8.6 percent coupon (paid semiannually) bond, with a $1,000 face value and 10 years remaining to maturity. The bond is selling at $915.

2) A 5.7 percent coupon (paid quarterly) bond, with a $1,000 face value and 10 years remaining to maturity. The bond is selling at $911.

3) A 7.7 percent coupon (paid annually) bond, with a $1,000 face value and 8 years remaining to maturity. The bond is selling at $1,061.

Therefore, (1) 9.962% (2) 6.942% (3) 6.691%

Explanation:

Solution

Given that:

A B C

FV = Future Value = - $1,000.00 - $1,000.00 - $1,000.00

PV = Present Value = $915.00 $911 $1,061

N = Total number of periods

= Years x frequency = 20 40 8

PMT = Payment

= Coupon / frequency = - $43.00 - $14.25 - $77.00

CPT > I/Y = Rate or YTM = 4.9810 1.7354 6.6907

Convert Yield in annual and percentage form = Yield*Frequency / 100

9.962% 6.942% 6.691%

1. 9.96%

2. 6.94%

3. 6.69%

Explanation:

Solution 1:

Since it is semiannually, number of periods are = 10*2 = 20

Coupon is = (1000*0.086) / 2 = $43.

Using the financial calculator: 2nd I/Y 2, PV = - 915, FV = 1000, N=20, PMT=43

Therefore, YTM = 9.96%

Solution 2:

Since it is quarterly, number of periods are = 10*4 = 40

Coupon is = (1000*0.057) / 4 = $14.25.

Using the Financial calculator: 2nd I/Y 4, PV = - 911, FV = 1000, N=40, PMT=14.25

Therefore, YTM = 6.94%

Solution 3:

Since it is annual, number of periods are = 8

Coupon is = (1000*0.077) = $77.

Using Financial calculator: FV is = 1000, PV is = - 1061, N is = 8, PMT is = 77.

Therefore YTM = 6.69%.

Goodluck buddy.