XYZ bonds have a 7.60 percent coupon and pay interest annually. The face value is $1,000 and the current market price is $1,062.50 per bond. The bond matures in 16 years. What is the yield to maturity?
coupon is=7.60% * 1000=76
Face value=1000
Current market price=1062.50
No of years=16
Kd=C (fcv-P) ¡1/2(fcv P)
N
Note
P is current market price
Fcv is our face value.
put the variale in the formula and get your answer
To calculate the yield to maturity (YTM) of a bond, you need to use the formula:
YTM = (C + ((F - P) / n)) / ((F + P) / 2)
Where:
- YTM = Yield to Maturity
- C = Coupon payment (annual interest payment)
- F = Face value of the bond
- P = Current market price of the bond
- n = Number of years to maturity
In this case, the values are as follows:
- C = 7.60% of $1,000 = $76
- F = $1,000
- P = $1,062.50
- n = 16 years
Using these values, we can calculate the yield to maturity of the XYZ bond:
YTM = (76 + ((1000 - 1062.50) / 16)) / ((1000 + 1062.50) / 2)
YTM = (76 + (-62.50/16)) / ((1000 + 1062.50) / 2)
YTM ≈ 76 + (-3.90) / 1031.25 ≈ 0.0749
The yield to maturity of the XYZ bond is approximately 7.49%.