Question

Broke Benjamin Co. has a bond outstanding that makes semiannual payments with a coupon rate of 6.2 percent. The bond sells for $1,020.37 and matures in 18 years. The par value is $1,000. What is the YTM of the bond?(A) 4.51%(B) 3.01%(C) 5.71%(D) 6.01%(E) 5.41%

Answer 1

Answer:

option D is correct

annual YTM is 6.01 %

Explanation:

given data

rate = 6.2 %

bond sells = $1020.37

time = 18 year

par value = $1000

to find out

YTM of the bond

solution

we know YTM formula that is

YTM =  Coupon Amount + (Par Value – Bond sells) / time ) / ( Par Value + Bond sells) /2 )    ..............1

so here

coupon amount = par value × rate× 1/2 =  1000 × 6.2% × 1/2 = $31

time = 18×  2  = 36 year

so from equation 1  

YTM =  31 + ( 1000–1020.37 ) / 36 ) / ( 1000 + 1020.37) /2 )

YTM = 0.030127 = 3.012 %

semi annual YTM is 3.012%

annual YTM is 6.024 %

option D is correct 6.01%