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?

Question

Business

Seth Horn

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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Answers (1)

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Talia Mata · Answer 1

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%