Question

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?

Answer 1

Answer:

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%