The exact yield to maturity is 6.67% and 6.694%
Yield to maturity (YTM) stands for the total rate of return that will have been acquired by a bond when it makes all interest payments and repays the original principal. YTM exists a bond's internal rate of return (IRR) if held to maturity.
The computation of the approximate yield to maturity and the exact yield to maturity exist given below:
For Approximate yield to maturity it exits
= 2 × ((Face value - current price) ÷ (2 × time period) + face value × coupon rate ÷ 2) ÷ (Face value + current price) ÷ 2)
=2 × (($1,000 - $950) ÷ (2 × 10) + $1,000 × 6% ÷ 2) ÷ (($1,000 + $950) ÷ 2)
= 6.67%
Now
The Exact yield to maturity is
= RATE(NPER,PMT,-PV,FV)
= Rate(10 × 2, 6% × $1000 ÷ 2,-$950,$1,000) × 2
= 6.694%
The complete question is,
What is the approximate yield to maturity and the exact yield to maturity (use a calculator) for the $1,000 semi-annual bond? Assume this is issued in the United States: 10 years to maturity, 6 percent coupon rate, current price is $950.
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