Question

Suppose the following bond quotes for IOU Corporation appear in the financial page of today’s newspaper....

Suppose the following bond quotes for IOU Corporation appear in the financial page of today’s newspaper. Assume the bond has a face value of $1,000 and the current date is April 19, 2012. What is the yield to maturity of the bond? (Assume coupons are paid semiannually.)

(Enter your answer as a percentage, omit the "%" sign in your response, and enter your answer with two decimal places. For example, 1.214% should be entered as 1.21.)

Company (Ticker)   Coupon Maturity Last Price   Last Yield   EST Vol (000s)  

IOU (IOU)        6.8    Apr 19, 2033       99                ?? 1,845

Homework Answers

Answer #1

a.Information provided:

Face value= future value= $1,000

Market price= present value= 99%*$1,000 = $990

Time= April 19, 2033 - April 19, 2012 = 21 years*2 = 42 semi-annual periods

Coupon rate= 6.8%/2 = 3.4%

Coupon payment= 0.034*$1,000= $34 per semi-annual period

The yield to maturity is calculated by entering the below in a financial calculator:

FV= 1,000

PV= -990

N= 42

PMT= 34

Press the CPT key and I/Y to compute the yield to maturity.

The value obtained is 3.4454.

Therefore, the yield to maturity is 3.4454%*2 = 6.8908% 6.89%.

In case of any query, kindly comment on the solution.

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