Question

Two years ago, atlantic airlines sold 250$ million worth of bonds at $1000 each. the bonds have a matirity date 12 years from issue date. they have a coupon rate of 12 %. today the bonds sell for 910$. Determine the yield to maturity (to the nearest tenth of one percent)

Answer 1

Final answer

YTM = 13.7%

Explanation

Original issue = 12 years.

Time remaining to maturity = 12 - 2 = 10 years

So ........ nper = number of periods = 10.

pmt = periodic payment = 1000 * 12% = 120 annual coupon payment

pv = present value = -910. ........... i.e current selling price.

fv = future value = maturity value of the bond = 1000.

type = 0

Using excel ............... use the syntax ........ = RATE(nper,pmt,pv,fv,[type])

= RATE(10,120,-910,1000,0) ............ Will give the YTM = 13.7%