A bond trades at 80 with 8% coupons and matures in 2 years. What is the approximate YTM?

Question

IBPrep · Accepted Answer

Use the approximate YTM formula:

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

where C = annual coupon, F = face value, P = price, n = years to maturity.

With C = $8 (8% of $100), F = $100, P = $80, n = 2:

YTM = (8 + (100 - 80)/2) / ((100 + 80)/2) = (8 + 10) / (180/2) = 18 / 90 = 20% (approximately).

Answer