What is the yield to maturity?

Question

Otto Enterprises has a 15-year bond issue outstanding with a coupon of 8 percent. The bond is currently priced at $923.60 and has a par value of $1,000. Interest is paid semiannually. What is the yield to maturity?

Answer 1

This can be solved using a TI-83/84 calculator or Excel using the TVM Solver:

TI-83/84 calculator:

-APPS

-1:Finance

-1:TVM_Solver

Below are your inputs:

N=30 (remember semiannual - 15 years / 2)

I%=SOLVE (we are solving for the yield to maturity)

PV=-923.6 (initial cash outlow - negative)

PMT=40 (interest received each period)

FV=1000 (future inflow of cash at maturity date)

P/Y=1

C/Y=1

PMT:END

I%=4.467

*The interest is 4.467% on a semiannual basis and 8.934% on an annual basis

Hope this helps - cheers!

Evan