Question

Broke Benjamin Co. has a bond outstanding that makes semiannual payments with a coupon rate of 5.7 percent. The bond sells for $962.62 and matures in 13 years. The par value is $1,000. What is the YTM of the bond

Answer 1

Answer: 0.06101 = 6.101%

The yield to maturity of the bond is

6.101%

Explanation:

Using YTM formula below

YTM = C + (fv - pv) /n ÷ (fv + pv) /2

C= coupon rate = 5.7% of par value

5.7/100 × 1000

= $57

pv = price value = $962.62

Fv = face value / par value = $1000

n = number of years to maturity =13

Using above formula

C + ( fv - pv) /n =

57 + (1000 - 962.62) /13

57 + (37.38) / 13 = 59.8753846

(fv + pv) / 2 =

(1000 + 962.62) / 2

= 1962.62 / 2 = 981.31

YTM = C + (fv - pv) /n ÷ (fv + pv) /2

YTM = 59.8753846 / 981.31

YTM = 0.06101

( to percentage) = 6.101%