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Apply the Yield to Maturity (YTM) calculation to the following bond and explain your calculation and...

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Finance

Apply the Yield to Maturity (YTM) calculation to the followingbond and explain your calculation and how to interpret it. What isthe YTM of a bond with a current price of $962 maturing at parvalue in 7 years with semi-annual dividends and a coupon of 6%?

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4.3 Ratings (679 Votes)

Par/Face value 1000
Annual Coupon rate 0.06
Annual coupon 60
semi-annual coupon 30
Present Value = Future value/[(1+(r/m))^mt]
r is the yield to maturity
m is the compounding period that is 2
mt is the time period.
price of the bond = sum of present values of future cash flows
price of the bond = 962
Use excel to find r
r/2 0.0334 r 0.0668
mt 1 2 3 4 5 6 7 8 9 10 11 12 13 14
future cash flow 30 30 30 30 30 30 30 30 30 30 30 30 30 1030
present value 29.03039 28.09211 27.18416 26.30555 25.45534 24.63261 23.83648 23.06607 22.32056 21.59915 20.90106 20.22552 19.57182 650.2477
sum of present values 962
The yield to maturity of this bond (YTM) is 6.68%.

Since the bond is selling at a discount the yield to maturity is more than the coupon rate.
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Apply the Yield to Maturity (YTM) calculation to the followingbond and explain your calculation and how to interpret it. What isthe YTM of a bond with a current price of $962 maturing at parvalue in 7 years with semi-annual dividends and a coupon of 6%?

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