Assume that you are interested in a 650 percent coupon corpo

Assume that you are interested in a 6.50 percent coupon corporate bond that has ten years left to maturity. If coupon payments are semiannual, and the bond is currently selling for $975, what is the yield you could expect on this bond if you held it until it matures?

Solution

Assuming the face value to be $1,000

Price of bond = $975

Coupon payment = 0.065 * 1,000 = 65 / 2 = 32.5 ( since it is a semi-annual bond, we divide by 2)

Number of periods = 10 * 2 = 20

Yield to maturity using a financial calculator = 6.849%

Keys to use in a financial calculator: 2nd I/Y 2, PV = 975, FV = 1000, PMT = 32.5, N = 20, CPT I/Y