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Heginbotham Corp. issued 20-year bonds two years ago at a coupon rate of 5.3 percent. The...

Heginbotham Corp. issued 20-year bonds two years ago at a coupon rate of 5.3 percent. The bonds make semiannual payments. If these bonds currently sell for 105 percent of par value, what is the YTM?

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Answer #1

YTM is the rate at which PV of Cash Inflows are equal to Today's Bond price.

Ourstanding period - 18 Years i.e 36 periods

Todays bond price = $ 1050

YTM = rate at which least +ve NPV + [ NPV at that rate / CHange in NPV due to inc in rate by 0.5% ] * 0.5%

= 2% + [ 115.68 / 130.34 ] * 0.5%

= 2% + 0.44%

= 2.44%

YTM per six months - 2.44%

YTM per anum = 4.88%

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