Question

​(Related to Checkpoint​ 9.2)  ​(Yield to​ maturity)  Abner​ Corporation's bonds mature in 17 years and pay 7 percent interest annually. If you purchase the bonds for ​$900​, what is your yield to​ maturity? Your yield to maturity on the Abner bonds is nothing​%. ​(Round to two decimal​ places.)

Answer 1

We know that,

Price of bond = Present value of all coupons and face value discounted at YTM

Face value = 1000

Price = 900

Time for maturity = 17 years

Coupon Amount = 0.07 * 1000 = 70

900 = 70/(1+ytm)^1 +70/(1+ytm)^2 +70/(1+ytm)^3 +70/(1+ytm)^4 + ........... 70/(1+ytm)^17 +1000/(1+ytm)^17

We will use heat and trial method to get that value for which above equation satisfies.

YTM = 8.10% Answer

Or

Using Financial Calculator:

N= 17

FV = 1000

PV = -900

PMT = 70

CPT I/Y

I/Y = YTM = 8.10% Answer