Question

Tesla has 5.3% bonds that are due in 2025. Assume they are structured like every other bond we have talked about. They are currently priced at 85. What is the yield to maturity. Round to the nearest one decimal place and use the % symbol (3.4% would be the form of a correct answer)

Answer 1

NOTE: Current time is assumed to be end of 2018 and bonds are assumed to mature at the end of 2025

Bond Tenue = 2025 - 2018 = 7 years, Coupon Rate = 5.3 %, Par Value = $ 1000, Current Price = 85 or 85 % of Par Value,

Bond Coupon = 0.053 x 1000 = $ 53

Let the yield to maturity (ytm) be r

Therefore, 850 = 53 x (1/r) x [1-{1/(1+r)^(7)}] + 1000 / (!+r)^(7)

Using EXCEL's Goal Seek Function/ Hit and Trial Method/ a financial calculator to solve the above equation, we get:

r = 0.08201 or 8.201 % ~ 8.2 %