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    Will2412's Avatar
    Will2412 Posts: 37, Reputation: 2
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    #1

    Jul 24, 2011, 05:10 PM
    Bonds Yield to Maturity
    I have this hw problem that I have been working on. I have a check answer of 8.65% but in my attempts to try and solve I have come up with 8.38% and 9.13%. I know Im doing something wrong but can't figure it out. Can someone plese help. I need to wrap this up tonight.

    You just purchased a bond that matures in 5 years. The bond has a face value of $1000 and has an 8% annual coupon. The bond has a current yield of 8.21%. What is the bonds yield to maturity?
    Just Looking's Avatar
    Just Looking Posts: 1,610, Reputation: 480
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    #2

    Jul 24, 2011, 07:07 PM

    I'm not coming out with 8.65% either. I even used a bond calculator and came out with 8.39%

    Bond Yield Calculator

    Doing it manually, I came out with 8.37%, If you want to show your work, I'll see if you are understanding the process.
    Will2412's Avatar
    Will2412 Posts: 37, Reputation: 2
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    #3

    Jul 24, 2011, 07:29 PM
    Here is my latest attempt. Still didn't achieve the check answer given in the text.
    Face Value = $1000 Coupon = 8% annually or $80 Current yield = 8.21%
    8.21% = ($80 / Price paid for bond) x 100%
    (8.21 / 100) = (($80 / Price paid for bond) x 100%) / 100
    .0821 = $80/ Price paid for bond
    Price paid for bond today= $80 / .0821 = $974.42
    YTM = [$80 + ($1000 - $974.42)/5] / ($1000 + $974.42)/2
    YTM = 85.116/987.21 = .0862 or 8.62%
    Just Looking's Avatar
    Just Looking Posts: 1,610, Reputation: 480
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    #4

    Jul 24, 2011, 08:06 PM

    Wow - I've been on the computer all weekend working with budgets, etc - too many numbers. I missed the 5 years - somehow used 10 years.

    Anyway, you are right just the way you did it. I think it must just be rounding differences.
    Will2412's Avatar
    Will2412 Posts: 37, Reputation: 2
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    #5

    Jul 25, 2011, 06:21 AM
    Thank you
    wirelessany1's Avatar
    wirelessany1 Posts: 1, Reputation: 1
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    #6

    Jan 21, 2013, 11:48 AM
    For the benefit of anyone who comes along later, this is how the problem is answered. First you have to find the present value.

    annual interest / current yield = PV
    80 / 8.21% = $974.42

    now solve in Excel

    =rate(5,80,-974.42,1000)

    Yield to Maturity = 8.65%
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