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21 March, 00:08

Yield to maturity: Rudy Sandberg wants to invest in four-year bonds that are currently priced at $868.43. These bonds have a coupon rate of 6 percent and pay semiannual coupon payments. What is the current market yield on this bond

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  1. 21 March, 02:35
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    The answer is 10.08%

    Explanation:

    Yield to maturity is the rate of return a bondholder (investor) is expecting on its bond (investment) from the bond issuer.

    N (Number of years) = 8 years (4x 2)

    I/Y (Yield to Maturity) = ?

    PV (Present Value) = $868.43

    PMT (Payment) = $30 (6% of $1,000 : 2)

    FV (Future value) = $1,000

    Using Financial calculator:

    The yield-to-maturity is 5.04%

    5.04% (semi annual)

    Annual YMT = 5.04% x 2

    =10.08%
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