A 6.55 percent coupon bond with 19 years left to maturity is offered for sale at $1,125.25. What yield to maturity is the bond offering? (Assume interest payments are semiannual.)

Expert Answers

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Assuming a face value (F) of $1000, we are given the following data:

present value or bond value, b = $1125.25

Rate of return = 6.55%

Coupon payment, C = 1000 x6.55% = $65.5

Time to maturity, t = 19 years

Number of intervals (given semi-annual interest payments) = 38

Using the equation for bond price, 

bond price = (C/2) (1-[(1+YTM/2)^(-2t)])/(YTM/2) + F/[(1+(YTM/2)^t]

we can calculate the yield to maturity (YTM) as 5.48%.

You can also use a helpful link at http://www.investopedia.com/ask/answers/012015/how-do-i-calculate-yield-maturity-excel.asp to calculate the same using an easy excel function.

hope this helps.

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