Yield to maturity Answer: c Diff: M N

108. Yield to maturity--semiannual bond Answer: d Diff: M

Step 1: First determine what the bond is selling for today based on the information given about its call feature:

N = 10(2) = 20; I = 6.5/2 = 3.25; PMT = 100/2 = 50; FV = 1050; and then solve for PV = -$1,280.81. V_B = $1,280.81.
Step 2: Use this current price solution to solve for the YTM:

N = 15(2) = 30; PV = -1280.81; PMT = 100/2 = 50; FV = 1000; and then solve for I = 3.4775%.

Step 3: Since this is a semiannual rate, multiply it by 2 to solve for the nominal, annual YTM:

YTM = 3.4775%(2) = 6.955% ≈ 6.95%.

109. Yield to maturity--semiannual bond Answer: d Diff: M

We know the YTC, so from that we can find the current price. Once we know the current price, we can find the YTM.

Step 1: Using the YTC information solve for the bond’s current price:

Enter the following input data in the calculator:

N = 14; I = 3.25; PMT = 35; FV = 1040; and then solve for PV =
-$1,053.33. V_B = $1,053.33.
Step 2: Now use the bond’s current price to find the YTM:

Enter the following input data in the calculator:

N = 20; PV = -1053.33; PMT = 35; FV = 1000; and then solve for I = 3.137%.
Step 3: This rate is a semiannual rate. To find the nominal annual rate, multiply by two to get 3.137%  2 = 6.274%  6.27%.

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