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26 July, 19:15

A firm issues a bond today with a face value of $1,000, a 6.25% coupon rate, annual coupon payments, and a term of 15 years. An investor purchases the bond for $1,249. What is the yield to maturity?

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  1. 26 July, 20:37
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    YTM of the bond is 4.08%

    Explanation:

    Given FV = $1000, Cr = 6.25%, n = 15 years, p = $1249 YTM = ?

    The formula for calculating the YTM

    = C+F-P:n/F+P:2

    Solve C = bond makes annual coupon payments

    6.25*1000=$62.5

    Plug the values in the formula

    62.5+1000-1249:15 / 1000+1249:2

    =0.0408/4.08%
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