Bond yields and rates of return a 30-year, 10% semiannual coupon bond with a par value of $1,000 may be called in 4 years at a call price of $1,100. the bond sells for $1,050. (assume that the bond has just been issued.) what is the bond's yield to maturity? do not round intermediate calculations. round your answer to two decimal places.

The bond's yield to maturity is 9.45% using Excel to get exact values, and 9.59% using approximate method.

Explanation:

We can calculate is using 2 ways, using Excel to get the exact percentage or with approximate methods, calculating the semi-annual Yield to Maturity using the following formula

And from there we can calculate the Yield to Maturity just by multiplying the semi-annual one by 2.

Identifying the given information.

We have a period of 30 years, so for the semiannual bond we have periods.

The face value, FV, is $1000, the coupon rate is 0.10, thus we can use them to  find the interest per period PMT.

The current price of the bond, PV is $1050.

Replacing the values on the semiannual Yield to Maturity

Simplifying we get

Finding the Yield to Maturity.

We can just multiply by 2 to get the Yield to Maturity from our previous result and rounding it to 2 decimals we get

Alternatively we can use Excel and write:

RATE(n, PMT, PV, FV)*2

That is

RATE(60,50,1050,1000)*2

And we will get the exact Yield to maturity 9.49%

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