Question

Fifteen years ago, Namson and Co. issued 25-year coupon bonds. The yield to maturity at the time of issuance was 10 percent and the bonds sold at 120% of par value. The bonds are currently selling at 85% of par value. What is the current yield to maturity for these bonds? [Assume that the coupon is paid annually]. (Round your answer to 2 decimal places and record as a percent but without a percent sign. For example, record 18.3893 8.47 % as 18.39).

Answer 1

K = N

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

k=1

K =25

1200 =∑ [(Coupon rate*1000/100)/(1 + 10/100)^k]     +   1000/(1 + 10/100)^25

k=1

Coupon rate% = 12.2

K = N

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

k=1

K =10

850 =∑ [(12.2*1000/100)/(1 + YTM/100)^k]     +   1000/(1 + YTM/100)^10

k=1

YTM% = 15.21