Question

Wolverine Corp. issued 13-year bonds 2 years ago at a coupon rate of 9.4 percent. The bonds make semiannual payments and carry a face value of $1,000. If these bonds currently sell for $980, what is the YTM?

Group of answer choices

8.73%

11.64%

9.70%

10.67%

4.85%

Answer 1

Information provided:

Face value= Future value= $1,000

Current price= Present value= $980

Time= 13 years - 2 years= 11 years*2= 22 semi-annual periods

Coupon rate= 9.4%/2= 4.70%

Coupon payment= 0.0470* $1,000= $47 per semi-annual period

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

FV= 1,000

PV= -980

N= 22

PMT= 47

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

The value obtained is 4.8499

Therefore, the yield to maturity is 4.8499%*2= 9.6997% 9.70%.

Hence, the answer is option c.

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