The National Insurance Corporation has $1,000 par value bonds with a coupon rate of 8% per year making semiannual coupon payments. If there are twelve years remaining prior to maturity and these bonds are selling for $876.40, what is the yield to maturity for these bonds?

YTM is 9.625%

Explanation:

Yield to maturity is the annual rate of return that an investor receives if a bond bond is held until the maturity.

Face value = F = $1,000

Coupon payment = $1,000 x 8% = $80/2  = $40 semiannually

Selling price = P = $876.40

Number of payment = n = 12 years x 2 = 24

Yield to maturity = [ C + ( F - P ) / n ] / [ (F + P ) / 2 ]

Yield to maturity = [ $40 + ( 1000 - 876.4 ) / 24 ] / [ (1,000 + 876.4 ) / 2 ]

Yield to maturity = 9.625%

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