question archive A Macrohard Corp

A Macrohard Corp

Subject:FinancePrice:2.87 Bought7

A Macrohard Corp. bond carries an 8 percent coupon, paid semi-annually. The par value is $1,000, and the bond matures in six years. If the bond currently sells for $911.37

a.What is its yield to maturity (YTM)?

b. What is the effective annual yield?

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Answer:

1.

Yield to maturity:

911.37=(1000*8%/2)/(ytm/2)*(1-1/(1+ytm/2)^(6*2))+1000/(1+ytm/2)^(6*2)

Alternatively, using financial calculator,

FV=1000

PV=-911.37

PMT=8%*1000/2=40

N=6*2=12

CPT I/Y=5%

So, ytm=5*2=10%

2.

Effective annual yield=(1+10%/2)^2-1=10.25%

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