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New Homes has a bond issue with a coupon rate of 5.5 percent that matures in 8.5 years. The bonds have a par value of $1,000 and a market price of $1,022. Interest is paid semiannually. What is the yield to maturity?

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thaovtp1407

Answer:

5.18%

Explanation:

Given:

  • n = 8.5
  • Face Value = $1,000
  • Coupon rate = 5.5% => Coupon payment = 1000*5.5% = 55
  • Price:  $1,022.

As we know that, yield to maturity has the formula is:

YMT =  [C + (F-P/n) ] / (F+ P) / 2

= [55 + (1000 - 1022)/8.5] / (1000+1022)/2

= (55-[tex]\frac{44}{17}[/tex] ) / 1011

= 0.0518

= 5.18%

Hope it will find you well

Given: n is = 8.5 Then Face Value is = $1,000 Coupon rate is = 5.5% => Coupon payment = 1000*5.5% = 55. Then Price is: $1,022.

Bond issue

Then yield to maturity has the formula that is:

After that YMT = [tex][C + (F-P/n) ] / (F+ P) / 2[/tex]

Then = [tex][55 + (1000 - 1022)/8.5] / (1000+1022)/2[/tex]

Now = [tex](55- 44/17) / 1011[/tex]

After that = [tex]0.0518[/tex]

The maturity has=5.18%

Thus the correct answer is = 5.18%

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