Parkway Void Co. issued 17-year bonds two years ago at a coupon rate of 10.1 percent. The bonds make semiannual payments. If these bonds currently sell for 97 percent of par value, what is the YTM?

The answer is

0.615percent for semi annual

Annual YTM = 1.2 percent

Explanation:

The formula for determining the Yield-to-Maturity (YTM) is:

PV = PMT / (1+r) ^1 + PMT / (1+r) ^2 ... PMT / (1+r) ^1 PMT + FV / (1+r) ^n

We are to calculate Yield-to-Maturity (YTM) which is the rate of return on the bond to an investor.

Using a Financial calculator. Input the following:

N = (17 years - 2 years) x 2 = 30

1/Y = ?

PV = 97percent x $1,000 ($970)

PMT = 10.1/2 = 5.05 (semi - annual)

FV = $1,000

1/Y = 0.615 (semi annual)

Annual YTM = 0.615 x 2

=1.2 percent