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10 September, 15:53

West Corp. issued 25-year bonds two years ago at a coupon rate of 5.3 percent. The bonds make semiannual payments. If these bonds currently sell for 105 percent of par value, what is the YTM

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  1. 10 September, 17:20
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    YTM is 4.94%

    Explanation:

    The yield to maturity is the return on the bond throughout the bond's tenure and can be computed using rate function in excel as shown below.

    =rate (nper, pmt,-pv, fv)

    nper is the number of coupons the bond has left to pay (23 years*2)

    pmt is the semiannual coupon of the bond=$1000*5.3%*6/12=26.5

    pv is the curren price=$1000*105%=$1050

    fv is the face value of the bond

    =rate (46,26.5,-1050,1000) = 2.47%

    2.47% is the semiannual yield

    annual yield=2.47% * 2=4.94%
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