Question

Evans Emergency Response bonds have 6 years to maturity. Interest is paid semiannually. The bonds have a $1.500 par value and a coupon rate of 8 percent If the price of the bond is $1096.59, what is the annual yield to maturity? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Answer 1

To calculate the annual yield to maturity of the Evans Emergency Response bonds, you can use the formula: Annual Yield to Maturity = (Coupon Payment + (Face Value - Price of Bond) / Number of Years) / ((Face Value + Price of Bond) / 2). Given the specific values for the bond's coupon rate, par value, price, and maturity, you can substitute these values into the formula and calculate the yield to maturity as approximately 7.53%.

Step-by-step explanation:

To calculate the annual yield to maturity of the Evans Emergency Response bonds, we need to use the formula:

Annual Yield to Maturity = (Coupon Payment + (Face Value - Price of Bond) / Number of Years) / ((Face Value + Price of Bond) / 2)

Given that the coupon rate is 8 percent, the par value is $1,500, the price of the bond is $1,096.59, and the maturity is 6 years, we can substitute these values into the formula:

Annual Yield to Maturity = (8% * $1,500 + ($1,500 - $1,096.59) / 6) / (($1,500 + 1,096.59) / 2)

Solving this equation, we find that the annual yield to maturity is approximately 7.53%.