Question

Stone Sour Corp. issued 21-year bonds 4 years ago at a coupon rate of 9.14 percent....

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.)

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%”