Yield to Maturity - you just purchased a bond which matures in six years. The bo
ID: 2757877 • Letter: Y
Question
Yield to Maturity - you just purchased a bond which matures in six years. The bond has a face value of $1, 000 and a 7% annual coupon rate. The bond has a Current Yield of 7.21%. What is the YTM? You must first calculate the PV or Yo by using the current yield formula before you can complete the problem. Show work I Current Yield = 7.21% or.0721/1 = annual interest payment in $'s/PV in $ Find the PV in the formula above and then use it to complete the rest of the problem using your financial calculator. Solve for the current yield here.Explanation / Answer
The current yield is given by: Current Yield = Annual Coupons / Current Bond price
Current Yield = 7.21% = 0.0721
Annual coupons = 7% = 0.07 * 1000 = $70
Bond Price = Annual Coupons / Current Yield = 70/0.0721 = $970.87
Now The YTM is given by "rate" formula in excel as in =rate(nper,pmt,pv,fv) where nper =6 years, pmt = 7% of 1000 = $70, PV = 970.87 and FV = 1000
So Yield to maturity = rate(6,70,-970.87,1000) = 7.62%
YTM = 7.62%
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