Question

Suppose that a 6.250% semi-annual coupon paying bond is priced at 105.500 per 100 of par value. The tenor of the bond is 13 years. What is the yield to maturity?

Answer 1

5.70%

Step-by-step explanation:

In this question, we applied the RATE formula that is shown on the attachment below:

Provided that,

Present value = $1,000 × 105% = $1,050

Assuming figure - Future value or Face value = $1,000

PMT = 1,000 × 6.250% ÷ 2 = $31.25

NPER = 13 years × 2 = 26 years

The formula is shown below:

= Rate(NPER;PMT;-PV;FV;type)

The present value come in negative

So, after solving this, the yield to maturity is 5.70%

We assume the semi annual basis is followed so we half the interest rate and the coupon rate and doubles the time period