Question

Evans Emergency Response bonds have six years to maturity. Interest is paid semi annually. The bonds have a \(1,000 par value and a coupon rate of 8 percent. If the price of the bond is \)1,073.55, what is the annual yield to maturity?

Short answer

The bond’s yield to maturity is determined as the 6.5%

Step-by-step solution

Definition of Bond

Bonds are defined as the debt instrument issued by large companies and government institutions in order to raise the funds.

Determination of annual yield to maturity

Face Value	$1,000
Semi-annual coupon rate (8%/2)	4%
Number of compounding periods per year	2
Interest Per period ($1,000 x 4%)	$40
Bond Price Present Value	1,073.55
Number of years to maturity	6
Number of compounding periods till maturity	12
The bond yield to maturity	6.5%

Note here yield to maturity is calculated using financial calculator.