Bond SC has a face value of $1,000 and an annual interest rate of 9% paid semi-annually, it matures in 4 years with current market price of a) 851 and b) 1105. Yield to maturity (YTM) of a bond is the required rate of return expected on holding the bond till maturity. When the YTM of the bond is higher than the coupon value, the bond is said to be trading at a discount and when it is lower than the coupon value, then the bond is trading at a premium. YTM calculation is a trial and error process, however, we can calculate YTM using a financial calculator as follows: INT = PMT = coupon amount FV = M = maturity value PV = Price of the bond (input as a negative value) N = number of periods

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Chapter 6, Problem 11PROB

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Bond SC has a face value of $1,000 and an annual interest rate of 9% paid semi-annually, it matures in 4 years with current market price of a) 851 and b) 1105.

Yield to maturity (YTM) of a bond is the required rate of return expected on holding the bond till maturity. When the YTM of the bond is higher than the coupon value, the bond is said to be trading at a discount and when it is lower than the coupon value, then the bond is trading at a premium.

YTM calculation is a trial and error process, however, we can calculate YTM using a financial calculator as follows:

INT = PMT = coupon amount

FV = M = maturity value

PV = Price of the bond (input as a negative value)

N = number of periods

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