A coupon bond that pays interest of $60 annually has a par value of $1,000, matures in 5 years, and is selling today at an $84.52 discount from par value. the yield to maturity on this bond is ________.

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24-11-2017
Business

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A coupon bond that pays interest of $60 annually has a par value of $1,000, matures in 5 years, and is selling today at an $84.52 discount from par value. the yield to maturity on this bond is ________.

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talkingturkey talkingturkey · Answer 1 · 2017-12-04T19:23:22+01:00

Given:
Coupon bond:
pays interest of $60 per annum
par value of $1,000
matures in 5 years
selling today at an $84.52 discount from par value.

The approximate yield to maturity formula that will be used is:

Yield-To-Maturity = [C + (F - P / n)] ÷ [F+P/2]

Where:

C - coupon or interest payment per annum

F - Face Value or par value

P - price

n - Years to Maturity

I used the above formula for manual computation. There is also an online yield to maturity calculator and it confirmed the answer solved manually. The Yield to Maturity is 8.124%