A U.S. government bond matures in 10 years. Its quoted price is now 97

QUESTION

A U.S. government bond matures in 10 years. Its quoted price is now 97.8, which means the buyer will pay $97.80 per $100 of the bonds face value. The bond pays 5% interest on its face value each year. If $10,000 (the face value) worth of these bonds is purchased now, what is the yield to the in
9780 = 10000 (P/F, i%, 10) 10000(.05)(P/A,j%, 20) Or, you can simplify your life a little doing it this way. 9780 = 10000 (P/F, j%, 20) 10000(.05)(P/A,j%, 20) Make sure that (P/A) calculation is set to “End of Period”. I get, i = 0.05 ==> 10047.67 > 9780 i = 0.06 ==> 9318.39 < 9780 This is the tricky part. Solving for an internal rate cannot be done simply. It is an interative process. Unless your calculator has an IRR button, you must now guess at a better value. A typical way is linear interpolation. 10047.67-9780 = 267.67 <== Distance from 5% to where we want to be. 10047.67-9318.39 = 729.28 <== Distance from 5% to 6% 267.67/729.28 = 0.367033238 <== Fraction to next guess. Use as many decimal places as you like. The process should correct itself. i' = 0.05 0.367*(0.06-0.05) = 0.05367 ==> 9771.82 < 9780 See, we improved it quite a bit. Do it again. This time, throw out the 6% and use the 5.367%. Keep the desired... answer between the two values. 10047.67-9780 = 267.67 <== Distance from 5% to where we want to be. 10047.67-9771.82 = 275.85 <== Distance from 5% to 5.367% 267.67/275.85 = 0.970346203 <== Fraction to next guess. i' = 0.05 0.97*(0.05367-0.05) = 0.05356 ==> 9779.95 < 9780 That may be close enough, or you can just do it all day long. What fun! If your calcualtor will do it for you, you should notice that it takes a while. It is not an immediate response like most calculator functions. Anyway, I get 5.535593% doing it the way I proposed. If the coupons are REALLY annual, then I get 5.28892%. It does make a little difference.   ANSWER: CLICK REQUEST FOR  AN EXPERT SOLUTION