What is the approximate yield to maturity for a $1000 par value bond selling for $1120 that matures in 6 years and pays 12 percent interest annually

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28-06-2022
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What is the approximate yield to maturity for a $1000 par value bond selling for $1120 that matures in 6 years and pays 12 percent interest annually

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abdulmajeedabiodunac abdulmajeedabiodunac · Answer 1 · 2022-07-11T18:37:38+02:00

The approximate yield to maturity of the bond considering the par value, selling price as well as years to maturity is 9.43%

The requirement is to determine the approximate yield to maturity of the bond using a formula approach.

The approximate yield to maturity of a bond is different from the yield computed using a financial calculator or excel spreadsheet because the yield computed using a software approach is precise, in other words, the approximate yield to maturity of a bond can be computed using the formula provided below:

Yield=(C+(F-P)/n))/(F+P)/2

C=annual coupon=12%*$1000

C=$120

F=face value=$1000

P=current price=$1,120

n=years to maturity=6

Yield=($120+($1000-$1120)/6)/($1000+$1120)/2

Note $1000-$1120/6=-$20

Yield=($120-$20)/($2,120)/2

Yield=$100/$1060

Approximate yield=9.43%(rounded to 2 decimal places)

Find below additional resource link for computing approximate yield to maturity:

https://brainly.com/question/17073732

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