Question

A Japanese company has a bond outstanding that sells for 95 percent of its ¥100,000 par value. The bond has a coupon rate of 6.20 percent paid annually and matures in 18 years. What is the yield to maturity of this bond?

Answer 1

The Approximate Yield to Maturity Formula =[Coupon + ( Face Value - Market Price) / Number of years to maturity] / [( Face Value + Market Price)/2 ] *100

= [6,200 + ( 100,000- 95,000) / 18] /[( 100,000+95,000) /2] *100

= 6477 / 97,500*100

= 6.643076923%

Note : Coupon = Rate * Face Value

= 6.2% * 100,000

= 6,200

Since this formula gives an approximate value, the financial calculators can be used alternatively.

where,

Par Value = 100,000

Market Price = 95,000

Annual rate = 6.2% and

Maturity in Years = 18 Years

Hence the yield to maturity = 6.69%

Hence the correct answer is 6.69%