Question

Anna May’s Pizza Co. has a 15-year bond issue outstanding that pays a 9% coupon. The bond is currently priced at $894.60 and has a par value of $1,000. Interest is paid semiannually. What is the yield to maturity?

Answer 1

Yield to maturity of (YTM) of the Bond

The Yield to maturity of (YTM) of the Bond is calculated using financial calculator as follows (Normally, the YTM is calculated either using EXCEL Functions or by using Financial Calculator)

Variables	Financial Calculator Keys	Figure
Face Value [$1,000]	FV	1,000
Coupon Amount [$1,000 x 9.00% x ½]	PMT	45
Yield to Maturity [YTM]	1/Y	?
Time to Maturity [15 Years x 2]	N	30
Bond Price [-$894.60]	PV	-894.60

We need to set the above figures into the financial calculator to find out the Yield to Maturity of the Bond. After entering the above keys in the financial calculator, we get the yield to maturity (YTM) on the bond = 10.40%

“Hence, the Yield to maturity of (YTM) of the Bond will be 10.40%”