6.4 The yield to maturity assuming annual coupons is about 8%, because the present value of the bond's cash returns is $1,199, almost exactly $1,200, when discounted at 8%: PV PV (coupons)+ PV (final payment) = (coupon X annuity factor)+(face value X discount factor) = $140x 1 1 .08 .08(1.08)4 ]+$1,0 1 +$1,000 x- 1.084 $463.70+$735.03 $1,199 To obtain a more precise solution on your calculator, these would be your inputs:

Compute i to find yield to maturity (annual payments) = 7.97%. Yield to maturity (semian- nual payments)=4.026% per 6 months, which would be reported in the financial press as 8.05% annual yield.

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Annual Payments Semiannual Payments n =2 8 PV FV -1,200 1000 -1,200 1000 PMT 140 70