Galt Industries has just issued a callable,$1000 par value,five-year,6% coupon bond with semiannual coupon payments.The bond can be called at par in three years or anytime thereafter on a coupon payment date.If the bond is currently trading for $978.94,then its yield to maturity is closest to:
A)3.4%.
B)6.0%.
C)6.5%.
D)6.8%.

Question

Quizplus · Accepted Answer

To find the yield to maturity (YTM), we need to solve for the discount rate that makes the present value of the bond's cash flows equal to the current market price. Using the financial calculator, we can input the following:

N = 10 (since there are 2 coupon payments per year for 5 years)
PV = -978.94
PMT = 30 (6% coupon rate times $1000 par value divided by 2 semiannual payments)
FV = 1000
CPT --> I/Y = 6.5%

Therefore, the YTM is closest to 6.5%, which is option C.

Galt Industries Has Just Issued a Callable,$1000 Par Value,five-Year,6% Coupon