Broke Benjamin Co. has a bond outstanding that makes semiannual payments with a coupon rate of 6 percent. The bond sells for $981.45 and matures in 24 years. The par value is $1,000. What is the YTM of the bond

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8 August, 08:21

Broke Benjamin Co. has a bond outstanding that makes semiannual payments with a coupon rate of 6 percent. The bond sells for $981.45 and matures in 24 years. The par value is $1,000. What is the YTM of the bond

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Sarahi · Answer 1

YTM = 6.13%

Explanation:

As we know that: YTM = [C + (F-P/n) ] / (F + P) / 2

where C = Coupon payment = 1000 * 6% = $60.

F = face value of bond = $1000

P = Price of bond = $ 981.45

n = Years to maturity = 24 years

Solution:

YTM = 60 + [ (1000-981.45) / 24] / (1000+981.45) / 2

= (60 +.7729) / 990.72

= 60.7729 / 990.72

= 6.13%