Question

Skolits Corp. issued 15-year bonds 2 years ago at a coupon rate of 8.8 percent. The bonds make semiannual payments. If these bonds currently sell for 109 percent of par value, what is the YTM? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

YTM              %

Answer 1

ANSWER = 7.7%

EXPLANATION:

We will calculate YTM using the formula of bond price which is

Therefore,

1090 = 8.8%/2 × 1000 × [{1-(1+r/2)^-2(13)}/r/2] + 1000/(1+r/2)²⁽¹³⁾

since we cannot solve the equation directly for R, using a spreadsheet, a financial calculator, or trialand error, we get

R = 3.85%

Since the coupon payments are semiannual, this is the semiannual interest rate. The YTM is the APR of the bond, so :

YTM = 3.85% × 2

YTM = 7.7%

For any query please comment.