Question

Stone Sour Corp. issued 21-year bonds 4 years ago at a coupon rate of 9.14 percent. The bonds make semiannual payments. If these bonds currently sell for 104 percent of par value, what is the YTM? (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.)

Answer 1

Yield to Maturity [YTM] of the Bond

Yield to Maturity [YTM] = Coupon Amount + [(Par Value – Bond Price) / Maturity Years] / [(Par Value + Bond Price)/2]

Par Value = $1,000

Semi-annual Coupon Amount = $45.70 [$1,000 x 9.14% x ½]

Bond Price = $1,040 [$1,000 x 104%]

Maturity Period = 34 Years [(21 Years – 4 Years) x 2]

Therefore, Yield to Maturity [YTM] = Coupon Amount + [(Par Value – Bond Price) / Maturity Years] / [(Par Value + Bond Price)/2]

= [$45.70 + {($1,000 – $1,040) / 34 Years)] / [($1,000 + $1,040) / 2}]

= [($45.70 - $1.1765) / $1,020]

= 0.04345 or

= 4.345%

Semi-annual YTM = 4.345%

Therefore, the annual YTM = 8.69% [4.345% x 2]

“Hence, the Yield to Maturity [YTM] of the Bond would be 8.69%”