West Corp. issued 25-year bonds two years ago at a coupon rate of 5.3 percent. The bonds make semiannual payments.

If these bonds currently sell for 105 percent of par value, what is the YTM?

(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.)

Please explain using the HP 10b11+ Financial Calculator

YTM is 4.93%

Explanation:

The yield to maturity is the actual return on the 25-year bonds and it is computed using the rate formula in excel.

The rate formula is given as =rate(nper,pmt,pv,-fv)

nper is the number of years to maturity, which is 25 years, however for this calculation of yield , we use 23 years because the bond was issued 2 years ago and we are  ascertaining the yield to maturity today

The 23 years is multiplied by 2 to reflect that it is semi-annual interest paying bond.

pmt is the period payment of coupon calculated as $2.65  (5.3%/2*100-paid twice a year)

pv is the current price of the bond at $105

fv is the amount receivable on redemption which is $100

=rate(46,2.65,-105,100)

=2.47%  semi annually

=2.47%*2=4.93%

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