Question

Yield to Maturity and Required Returns

The Brownstone Corporation's bonds have 5 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10%.

1. What is the yield to maturity at a current market price of $861?Round your answer to two decimal places.

2. What is the yield to maturity at a current market price of $1,152? Round your answer to two decimal places.
%

Answer 1

1.Information provided:

Par value= future value= $1,000

Time= 5 years

Coupon rate= 10%

Coupon payment= 0.10*1,000= $100

Market price= present value= $861

The yield to maturity of the bond is calculated by entering the below in a financial calculator:

N= 5

FV= 1,000

PMT= 100

PV= -861

Press CPT and I/Y to compute the yield to maturity.

The value obtained is 14.05

The yield to maturity is 14.05%.

2.Information provided:

Par value= future value= $1,000

Time= 5 years

Coupon rate= 10%

Coupon payment= 0.10*1,000= $100

Market price= present value= $1,152

The yield to maturity of the bond is calculated by entering the below in a financial calculator:

N= 5

FV= 1,000

PMT= 100

PV= -1,152

Press CPT and I/Y to compute the yield to maturity.

The value obtained is 6.36.

The yield to maturity is 6.36%.

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