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Broke Benjamin Co. has a bond outstanding that makes semiannual payments with a coupon rate of 5.7 percent. The bond sells for $961.87 and matures in 21 years. The par value is $1,000. What is the YTM of the bond?

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thaovtp1407

Answer:

the  the YTM of the bond is 6%

Step-by-step explanation:

Given:

  • Coupon rate of 5.7 percent => Coupon payment = 5.7%*1000 = 57
  • Par value is $1,000 (F)
  • n =21 years
  • Price of bond: $961.87 (P)

As we know that, the formula to find out YTM is:

       YTM = [C + (F-P/n) ] / (F+ P) / 2

<=> YTM =  [ 57 + (1000 - [tex]\frac{961.87}{21}[/tex] )] / (1000 + 961.87)/2

<=> YTM = (57 + 1.87 ) / 980.935

<=> YTM = 0.06* 100% = 6%

So the  the YTM of the bond is 6%

Answer:

YTM = 2.99/3%

Step-by-step explanation:

Given CR= 5.7%, BP= $961.87, FV= $1000, n =21 YTM = ?

The bond is said to make semiannual payments

so calculate n = 21*2= 42

Coupon = 5.7%*1000= $57

semi annual = 57/2=$28.5

YTM = C+F-P/n ÷ F+P/2

         =28.5+1000-961.87/42 ÷ 1000+961.87/2

          =0.0299/3%

This makes sense for the YTM to be above the the coupon rate because the bond is trading below par value

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