A bond has a face value of Rs 1000 matures in 5 years and present value is Rs 1200. If coupon rate is 8% p.a. paid semi-annually, find the yield to maturity.
Answer & explanation
Correct answer: option 2
The correct answer is option (2) : 3.64% per annum
$F= ₹1000$
$N= 5×2-10$ half years
$P.V=₹1200$
$r=\frac{8}{2}$%=4% per half year
$∴C=1000×\frac{4}{100}=₹40$
Approx YTM $=\frac{40+\frac{1000-1200}{10}}{\frac{1000+1200}{2}}$
$=\frac{40-20}{1100}=0.0182 $
Approx YTM $=0.0182 $
$=1.82 $% per half year
$=3.64 $% per annum