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the 8.75% semiannual coupon bonds of Company Inc., are selling for $1,189.16 the bond has a...

the 8.75% semiannual coupon bonds of Company Inc., are selling for $1,189.16 the bond has a face value of 1000 and mature in 15 years. what is the yield to maturity
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Answer #1

Ans:

As per approximation method,

YTM = Coupon amount + ((Face value - current price)/maturity period ) / 0.4 Face value + 0.6 Current price

Coupon amount =  1000× 8.75% = 87.5

Face value = $1000

Current price = $1189.16

Period = 15 years

YTM = 87.5 +((1000 - 1189.16)/15) / (1000×0.4 + 1189.16 × 0.6)

YTM = 87.5 - 12.610667 / (400 + 713.496)

YTM = 74.889333 / 1113.496

YTM = 0.06726 or 6.726%

Note : As question has not mentioned about specific method we used estimation or approximation method.

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