Question

You must first set up a correct equation for the valuation of the bond, and then find the yield-to-maturity. Make sure you specify the equation correctly based on the given information. In your equation, you should have only one unknown variable, y, which is the (annualized) yield-to-maturity you are looking for. Be sure to use “y/2” for the half-year rate since coupons are payable semi-annually. That means after you find y/2, you have to double it to get the annualized YTM.

Remember, the equation will essentially show:

The current price of the bond = (PV sum of all future coupons) + (PV of the par value)

Long-Term Debt

The company has a capital structure that is made up of 34 percent long-term debt, 3 percent preferred stock, and 53 percent common stock. One of the two largest domestic long-term debt issues is a 9 1/8 percent coupon bond that is due in 26 years. This debenture is currently selling for $930. The bond is callable in seven years and if called will be redeemed at a premium of 104.4375. The other large publicly held bond is a 9 percent coupon bond that is due in nine years. This debenture is selling for $972.50. Both of these bonds are rated A by Moody’s.

1b:What is its yield-to-maturity? and specify trial-and-error i one sentenses  

Answer 1

YTM of bond with current price if $930 and coupon rate is 9.125% is calculate din excel and screen shot provided below:

YTM of bond with current price of $930 is 9.878%.

Again,

YTM of bond with current price if $972.50 and 9 year remains in maturity is calculate din excel and screen shot provided below:

YTM of bond with current price if $972.50 and 9 year remains in maturity is 9.461%.