You own a bond with a par value of $1,000 and a coupon rate of 8.50% (semiannual coupon). you know it has a current yield of 7.00%. what is its yield to maturity? the bond has 6 years to maturity. current yield = (annual payment / price). (hint: solve for price to answer the question). the answer is 4.40% but i dont know how to get that answer. i have a hp 10bll + financial calculator but i dont know how to put this into the calculator

YTM = 4.40%

Explanation:

From current yield we solve for price:

current yield: annual payment/ price

0.07 = 1,000 x 8.5% / price

85 / 0.07  = price = 1214,285714285714 = 1214.29

Now we solve for yield to maturity. This is the rate at which the present value value of the maturity and coupon payment are equal to his current price:

C42.50

time12 (6 years x 2 payment per year)

rate (semiannual as the payment are twice per year)

PVcoupon

Maturity   1,000.00

time   12.00

rate  

PVmaturity

PV c + PV m = $1,214.2903

So we got:

From here we solve using excel or financial calculator as you suggest.

notice this will give you the semiannual rate: 0.021988524 = 2.20%

You will have to multiply the answer by 2 giving you the 4.40% as you were told.

none

explanation:

we're are the selections to pick from?