Answer: Yield to maturity = 2 × 3.037 = 6.07%
Given:
Face Value = $1000
Bond Price = $1115
Semi annual coupon interest = 1000 × [tex]\frac{7 }{2}[/tex] % = $ 35
We'll equate the semi yield to maturity, using the following formula:
Semi yield to maturity = [tex]\frac{\frac{Face\ Value - Bond\ Price}{n} + Coupon\ Interest}{\frac{Face\ Value + Bond\ Price}{2}}[/tex]
where;
n = no. of semi annual period = 40
Using the value in above equation, we get
Semi yield to maturity = [tex]\frac{\frac{1000 - 1115}{40} + 35}{\frac{1000 + 1115}{2}}[/tex]
Semi yield to maturity = 3.037%
Therefore , yield to maturity = 2 × 3.037 = 6.07%
