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Beachwear ‘n More bonds have a 9.5 percent coupon and pay interest semiannually. Currently, the bonds...

Beachwear ‘n More bonds have a 9.5 percent coupon and pay interest semiannually. Currently, the bonds are priced at $1,063.15. The company issued this 20-year bond eight years ago. What is the yield to maturity?

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Answer #1

Face value is 1000

Market value is 1063.15

Time to maturity is 20 years

Periodic interest rate is 9.5/2 = 4.75

When coupon rate is equal is to market price will be equal to facevalue

Value of bond when periodic interest is 5%

Value of bond is present value of cashflows

= 47.5(PVIFA 5% 24p) + 1000(PVIF 5% 24p)

= 47.5(13.7986) + 1000(0.3101)= 965.53

Market rate is 1063.15

By interpolation method

5% - (1063.15-965.53)×(0.25)/(1000-965.53)

= 4.292

Annual = 4.292×2 = 8.584

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