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The bonds issued by United Corp. bear a coupon of 6 percent, payable semiannually. The bond matures in 20 years and has a $1,000 face value. Currently, the bond sells at $955. The yield to maturity (YTM) is _____%.

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Parrain

Answer: 6.40%

Explanation:

Use Excel to calculate this by the formula;

= RATE(Nper,Pmt,-Pv,Fv)

Nper is number of periods = 20 * 2 = 40 semi annual periods

Pmt is the payment = $6%/2 * 1,000 = $30

Pv is the present value = $955

Fv is future value or face value = $1,000

= RATE (40,60,-955,1000)

= 3.20% * 2 (because this is a semi annual rate)

= 6.40%

abiolataiwo2015

If the bond sells at $955. The yield to maturity (YTM) is 6.40%.

First step is to find the rate using financial calculator

Rate=(Nper,Pmt,-Pv,Fv)

Where:

Nper = 20 ×2 = 40 years

Pmt = $1,000×6%/2 = $30

Pv = $955

Fv = $1,000

Hence:

Rate=(40,60,-955,1000)

Rate=3.20%

Now let calculate the yield to maturity (YTM)  

Yield to maturity= 3.20%×2

Yield to maturity=6.40%

Inconclusion the yield to maturity (YTM) is 6.40%.

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