00:01
All right, here we're working with better understanding interest rates, particularly in this case, a coupon bond is what we're using as our example.
00:08
We have a 20 -year coupon bond at 12 % with a face value of $1 ,000 and it sells for $2 ,500.
00:14
What we want to do is write out the formula that would be used to calculate its yield to maturity.
00:20
We don't actually have to solve it because we would typically need a financial calculator to do this.
00:24
So let's go ahead and just write out the formulas so that we have a better understanding of what exactly that is.
00:28
So let's first identify what that formula is in base terms.
00:33
That's where our present value is equal to c, so that is our coupon payment divided by 1 plus i, which is the interest rate.
00:45
Then we're plus, again, our coupon payment all over 1 plus i, but now that is squared.
00:52
All right, and this would continue on until we got to our coupon payment divided by 1.
00:58
Plus our interest rate to end.
01:01
So however many years we have plus this future value that we have divided by one plus our interest rate to end.
01:11
Okay, so that's ultimately what it would be.
01:12
But let's go ahead and fill in for each of these variables what we have...