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The 5 percent semiannual coupon bonds of Under The Counter, Inc., are selling for $995.25. The bonds have a face value of $1,000 and mature in 12 years. What is the yield to maturity? A) 5.09 percent B) 5.05 percent C) 10.07 percent D) 5.26 percent E) 11.1 percent

Respuesta :

jepessoa

Answer:

4.97%

Explanation:

yield to maturity (YTM) = {coupon + [(face value - market value)/n]} / [(face value + market value)/2]

  • face value = $1,000
  • market value = $995.25
  • n = 12 x 2 = 24 periods
  • coupon = $1,000 x 5% x 1/2 = $25

YTM = {$25 + [($1,000 - $995.25)/24]} / [($1,000 + $995.25)/2]

YTM = $24.80 / $997.63 = 2.486% x 2 = 4.97%

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