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Cricket Systems Co. plans to issue bonds with a par value of $1,000 and 30 years...

Cricket Systems Co. plans to issue bonds with a par value of $1,000 and 30 years to maturity. These bonds will pay $25 interest every 6 months. Current market conditions are such that the bonds will be sold to net $1,205.62. What is the yield to maturity (YTM) on an annual basis that a broker would quote to an investor.

Please answer without using a financial calculator and without using excel. The final answer is 3.84%.

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Answer #1

Solution :-

Face Value of Bond = $1,000

Semiannual Coupon rate = $1,000 * 2.5% = $25

Time to Maturity = 30 Years

Semiannual Period = 30 * 2 = 60

Price of Bond ( P ) = $1,205.62

YTM ( as per approximation )

YTM = 0.0192

Therefore Semiannual YTM = 1.92%

Therefore Annual YTM = 1.92% * 2 = 3.84%

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