Question

Harrimon Industries bonds have 6 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 10%.

What is the yield to maturity at a current market price of

$876? Round your answer to two decimal places. %

$1,189? Round your answer to two decimal places. %

Answer 1

Answer of Part 1:

Face Value = $1,000
Current Price = $876

Annual Coupon Rate = 10%
Annual Coupon = 10%*$1,000 = $100

Time to Maturity = 6 years

Let annual YTM be i%

$876 = $100 * PVIFA(i%, 6) + $1,000 * PVIF(i%, 6)

Using financial calculator:
N = 6
PV = -876
PMT = 100
FV = 1000

I = 13.11%      

Annual YTM = 13.11%

Answer of Part 2:

Face Value = $1,000
Current Price = $1,189

Annual Coupon Rate = 10%
Annual Coupon = 10%*$1,000 = $100

Time to Maturity = 6 years

Let annual YTM be i%

$1,189 = $100 * PVIFA(i%, 6) + $1,000 * PVIF(i%, 6)

Using financial calculator:
N = 6
PV = -1,189
PMT = 100
FV = 1000

I = 6.14%        

Annual YTM = 6.14%