A mortgage bond issued by Automation Engineering is for sale

A mortgage bond issued by Automation Engineering is for sale for $7,700. The bond has a face value of $10,000 with a coupon rate of 6% per year, payable semi-annually. What rate of return will be realized if the purchaser holds the bond to maturity 6 years from now?

The rate of return will be  % per year.

Solution

use financial calculator in this case to find the rate of return or yield to maturity

PV=-7700 is present value or the sale value of bond

FV=10000 is face and par value of the bond

N=6*2=12 semi annuals periods for bond remaining

PMT=10000*6%/2=300 per semi annuals period

Click CPT

Click I/Y=5.6982% per semi annuals period

The rate of return will be=5.6982%*2=11.40%

The above should be the answer....