Broke Benjamin Co. has a bond outstanding that makes semiannual payments with a coupon rate of 5.6 percent. The bond sells for $958.56 and matures in 20 years. The par value is $1,000. What is the YTM of the bond

The answer is 5.96%

Explanation:

This is a semiannual paying coupon, meaning it makes payment twice a year.

N(Number of periods) = 40 years ( 20years x 2)

I/Y(Yield to maturity) = ?

PV(present value or market price) = $958.56

PMT( coupon payment) = $28 ( [5.6percent÷ 2] x $1,000)

FV( Future value or par value) = $1,000.

We are using a Financial calculator for this.

N= 40; PV = -958.56 ; PMT = 28; FV= $1,000; CPT I/Y

I/Y = 2.98%. Please note that this is for semiannual.

Therefore, annual YTM = 5.96%(2.98% x 2).

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