Consider a coupon bond that has a par value of $900 and a coupon rate of 10%. The bond is currently selling for $940.40 and has 2 years to maturity. What is the bond’s yield to maturity (YTM)?
Hence, the bond’s yield to maturity = 7.50%
Step-by-step explanation
We can calculate the yield to maturity by using the following formula in excel:-
=rate(nper,pmt,-pv,fv)
Here,
Rate = Yield to maturity
Nper = 2 periods
Pmt = Coupon payment = $900*10% = $90
PV = $940.40
FV = $900
Substituting the values in formula:
= rate(2,90,-940.40,900)
= 7.50%