Question

Parkway Void Co. issued 17-year bonds two years ago at a coupon rate of 10.1 percent. The bonds make semiannual payments. If these bonds currently sell for 97 percent of par value, what is the YTM?

Answer 1

Answer:

The answer is

0.615percent for semi annual

Annual YTM =1.2 percent

Explanation:

The formula for determining the Yield-to-Maturity(YTM) is:

PV = PMT/(1+r)^1 + PMT/(1+r)^2 .......PMT/(1+r)^1 PMT + FV/(1+r)^n

We are to calculate Yield-to-Maturity(YTM) which is the rate of return on the bond to an investor.

Using a Financial calculator. Input the following:

N = (17 years - 2 years) x 2 = 30

1/Y = ?

PV = 97percent x $1,000($970)

PMT = 10.1/2 = 5.05 (semi- annual)

FV = $1,000

1/Y = 0.615(semi annual)

Annual YTM = 0.615 x 2

=1.2 percent