Question

A corporate bond has a 6% annual coupon, $1000 par value, and 25 years left to maturity. If the bond currently sells for a premium of 1120, what is the yield to maturity

Answer 1

Yield to Maturity = 5.21%

Step-by-step explanation:

The yield on the bond can be determined as follows using the formula below:

YM = C + F-P/n) ÷ 1/2 (F+P)

YM-Yield to maturity-

C- annual coupon

F- Face Value

P- Current Price

YM-?, C- 6%× 1000 =60, Face Value - 1,000, P-1120

YM = (60 + (1000-1120)/25) ÷ ( 1/2× (1000 + 1120) )

YM = 0.0520 × 100 = 5.207

Yield to Maturity = 5.21%