Question

A 15-year bond is currently priced at $900 and pays a semi-annual coupon payment of 8%. The par value is $1,000. What is the yield to maturity

Answer 1

The yield to maturity of the bond given from the information will be 9.24%.

How to calculate the yield to maturity

From the information given, the following can be deduced:

• Current price = $900
• Coupon payment = 8%
• Semi annual payment = 1000 × 0.4 = 40
• Number of periods = 15 × 2 = 30

The price at 5% will be:

= (40 × 15.37) + (1000 × 0.23)

= 846.27

Using 4%, the interpolation to calculate the value will be:

= 4 + [(1000 - 900)/(1000 - 846.27)] × 1

= 4.623%

Therefore, the yield to maturity will be:

= 4.623% × 2

= 9.24%

In conclusion, the yield to maturity is 9.24%.

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