Footsteps Co has a bond outstanding with a coupon rate of 57

Footsteps Co. has a bond outstanding with a coupon rate of 5.7 percent and annual payments. The bond currently sells for $992.35, matures in 21 years, and has a par value of $1,000. What is the YTM of the bond?

5.19%

5.76%

5.74%

5.70%

4.80%

Solution

Annual coupon=$1000*5.7%=$57

Hence approx YTM=[Annual coupon+(Face value-Present value)/time to maturity]/(Face value+Present value)/2

=[57+(1000-992.35)/21]/(1000+992.35)/2

which is equal to

=5.76%(Approx).