Question

You are analyzing the after-tax cost of debt for a firm. You know that the firm’s 12-year maturity, 15.50 percent semiannual coupon bonds are selling at a price of $1,117.25. These bonds are the only debt outstanding for the firm. Collapse question part (a1) What is the current YTM of the bonds? (Round final answer to 2 decimal places, e.g. 15.25%.) YTM %

Answer 1

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =12x2

1117.25 =∑ [(15.5*12000/200)/(1 + YTM/200)^k]     +   12000/(1 + YTM/200)^12x2

k=1

YTM = 13.5%