Question

The Petit Chef Co. has 10.1 percent coupon bonds on the market with ten years left...

The Petit Chef Co. has 10.1 percent coupon bonds on the market with ten years left to maturity. The bonds make annual payments and have a par value of $1,000.

If the bonds currently sell for $1,155.73, what is the YTM? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
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Answer #1

Current Price = 1155.73

Coupon 10.1%

Maturity = 10 years

Let's assume the YTM be 7%

Value of Bond =

=

= 1217.73102778

Now,

Let's assume the YTM be 8%

Value of Bond =

=

= 1140.91170938

YTM = Lower Rate + (\frac{Surplus}{Surplus + deficit}) * (Higher Rate - Lower rate)

= 7% + ((1217.73102778 - 1155.73) / (1217.73102778 - 1155.73) + (1155.73 - 1140.91170938)) * (8-7)

= 7% + (62.001027778 / 76.98193184) * 1

= 7% + 0.8071020294

= 7.81%

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