Question

Sarsgaard Enterprises has a 15-year bond issue outstanding that pays a 9 percent coupon semi-annually. The bond is currently priced at $911.65 and has a par value of $1,000. What is the yield-to-maturity of the bond?

• 5.08%
• 10.13%
• 10.16%
• 10.40%
• None of the above

Answer 1

Given about Sarsgaard Enterprises' bond,

Coupon rate = 9% paid semiannually

Face value = $1000

years to maturity = 15

current price = 911.65

So, semiannual coupon payment = (9%/2) of 1000 = $45

Yield to maturity can be calculated on financial calculator using following values:

FV = 1000

PMT = 45

PV = -911.65

N = 2*15 = 30

compute for I/Y, we get I/Y = 5.08

So, semiannual yield on the bond is 5.08%

So, Annual yield to maturity = 2*5.08 = 10.16%

Option C is correct.