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Adams Food Service has issued 9 1/8 percent bonds that mature on July 15, Year 34....

Adams Food Service has issued 9 1/8 percent bonds that mature on July 15, Year 34. The bonds are callable at $1,029.2 on July 15, Year 10. Assume that interest is paid and compounded annually. Determine the yield-to-maturity if an investor purchased a $1,000 denomination bond for $820 on July 15, Year 1. Round your answer to two decimal places.

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Answer #1

Number of years until maturity = 33

Coupon rate = 9 1/8 = 9.125%

YTM is calculated using RATE function in Excel :

nper = 33 (years remaining until maturity with 1 annual coupon payment each year)

pmt = 1000 * 9.125% (annual coupon payment = face value * coupon rate)

pv = -820 (Current price of bond. This is entered with a negative sign because it is a cash outflow to buy the bond today).

fv = 1000 (face value of bond receivable at maturity).

RATE is calculated to be 11.20%. This is the YTM.

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