Question

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 $972. Interest is paid semiannually. What is the yield to maturity

Answer 1

Answer:

5.92%

Explanation:

Calculation for yield to maturity

Using this

Yield to maturity or YTM= [Coupon amount+Face value-Current price/Number of years] /Face value+Current price/2

Where,

Coupon amount=1,000 x 5.5=55/2

Coupon amount=27.5

Face value=$1,000

Current price=$972

Numbers of years=8.5 years which is 17 periods

Let plug in the

YTM =[27.5+(1,000-972/17)]/[1,000+972/2]

YTM =[27.5+ 28/17]/986

YTM =27.5+1.64/986

YTM =29.19/986

YTM =2.96 x 2

YTM =5.92%

Therefore yield to maturity will be 5.92%