Question

The Timberlake-Jackson Wardrobe Co. has 10.5 percent coupon bonds on the market with nine years left to maturity. The bonds make annual payments and have a par value of $1,000. If the bonds currently sell for $1,142.49, what is the YTM? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Yield to maturity %

Answer 1

Yield to maturity %: 8,2%

Step-by-step explanation:

To know the YTM of the bond we need first to calculate the Present Value of the Principal and then through the annuity method calculate the Present Value of the coupons.

Bond Value

Principal Present Value = F / (1 + r)^t

Coupon Present Value = C x [1 - 1/(1 +r)^t] / r

The price of this bond it's $492 + $651 = $1,142,49

Bond $1,000

Coupon $105,00

Annual Rate 10,5%

YTM 8,2%

Years 9

Present Value of Bonds $492 = $1,000/(1+0,082)^9

Bond $1.000

YTM Rate 8,20%

Periods 9

Present Value of Coupons $651 = $105 (Coupon) x 6,20

6,20 = [1 - 1/(1+0,082)^9 ]/ 0,082

Bond $1.000

YTM Rate 8,20%

Periods 9