Question

You are analyzing the cost of debt for a firm. You know that the firm’s 14-year maturity, 6.6 percent coupon bonds are selling at a price of $609.88. The bonds pay interest semiannually. If these bonds are the only debt outstanding for the firm, answer the following questions. Collapse question part (a1) What is the current YTM of the bonds? (Round final answer to 2 decimal places, e.g. 15.25%.) Current YTM for the bonds %

Answer 1

K = Nx2

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

k=1

K =14x2

609.88 =∑ [(6.6*1000/200)/(1 + YTM/200)^k]     +   1000/(1 + YTM/200)^14x2

k=1

YTM% = 12.6