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 9%.

What is the yield to maturity at a current market price of $825?

What is the yield to maturity at a current market price of $1,176?

Answer 1

Answer of Part 1:

Face Value = $1,000
Current Price = $825

Annual Coupon Rate = 9%
Annual Coupon = 9%*$1,000 = $90

Time to Maturity = 6 years

Let annual YTM be i%

$825 = $90 * PVIFA(i%, 6) + $1,000 * PVIF(i%, 6)

Using financial calculator:
N = 6
PV = -825
PMT = 90
FV = 1000

I = 13.43%      

Annual YTM = 13.43%

Answer of Part 2:

Face Value = $1,000
Current Price = $1,176

Annual Coupon Rate = 9%
Annual Coupon = 9%*$1,000 = $90

Time to Maturity = 6 years

Let annual YTM be i%

$1,176 = $90 * PVIFA(i%, 6) + $1,000 * PVIF(i%, 6)

Using financial calculator:

N = 6
PV = -1,176
PMT = 90
FV = 1000

I = 5.48%        

Annual YTM = 5.48%