Question

The $1,000 face value bonds of Galaxies International have coupon of 6.45 percent and pay interest semiannually. Currently, the bonds are quoted at 103.4 and mature in 4 years. What is the yield to maturity?

Answer 1

Answer:

YTM = 52%

Explanation:

F= face value of bond= 1000

Price of bond = 103.4

t= 4 years = 4 * 2 = 8 periods for semi annual coupon payments.

Coupon rate = 6.45% = 6.45%= .0645

n=number of years to maturity = 4 years

C= coupon payment = 1000 * coupon rate = 1000* 6.45% = 64.6

Formula: YTM = [C +  (F-P/n)]/(F+P)/2

                      =  [64.5  +  (1000-103.4)/4] / [(1000+103.4)/2]

                      = 288.6/551.7

                YTM      = 52%

                     

Answer 2

Answer:

the yield to maturity is 5.49%

Explanation:

Consider the following calculations

Yield to Maturity = [Interest + (Price - Redeemable Value)/n] / (Price + Redeemable Value)/2 = [32.25 + (1034 - 1000)/8] / (1034 + 1000)/2 = 2.745% semi-annually

Annually = 2.745 x 2 = 5.49%.