The Sisyphean Company has a bond outstanding with a face value of $ 1 comma 000 $1,000 that reaches maturity in three three years. The bond certificate indicates that the stated coupon rate for this bond is 8.4 8.4 % and that the coupon payments are to be made semiannually. Assuming that this bond trades for $ 1 comma 043 $1,043 , then the YTM for this bond is closest to:

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Business

Conor Terrell

3 November, 11:45

The Sisyphean Company has a bond outstanding with a face value of $ 1 comma 000 $1,000 that reaches maturity in three three years. The bond certificate indicates that the stated coupon rate for this bond is 8.4 8.4 % and that the coupon payments are to be made semiannually. Assuming that this bond trades for $ 1 comma 043 $1,043 , then the YTM for this bond is closest to:

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Karma Ibarra · Answer 1

7% annually

Explanation:

Yield to maturity is the annual rate of return that an investor receives if a bond bond is held until the maturity. It is the long term return of the bond which is expressed in annual term.

Face value = F = $1,000

Coupon payment = $1,000 x 8.4% = $84/2 = $42 semiannually

Selling price = P = $1,043

Number of payment = n = 3 years x 2 = 6

Yield to maturity = [ C + (F - P) / n ] / [ (F + P) / 2 ]

Yield to maturity = [ $42 + ($1,000 - $1,043) / 6 ] / [ ($1,000 + $1,043) / 2 ]

Yield to maturity = [ $42 - 7.16 ] / $1,021.5

Yield to maturity = 0.0341% = 3.41% semiannually = 6.82% annually

Rounded off to whole percentage 7%