Question

The Pennington Corporation issued a new series of bonds on January 1, 1985. The bonds were sold at par ($1,000); had a 12% coupon; and mature in 30 years, on December 31, 2014. Coupon payments are made semiannually (on June 30 and December 31). a. What was the YTM on January 1, 1985?

Answer 1

The YTM on January 1, 1985 was 6.00%.

Step-by-step explanation:

The YTM is the interest rate used to determine the Present Value of Coupons and Principle and can be found as follows :

PV = $1,000

Pmt = ($1,000 × 12 %) / 2 = - $60

P/yr = 1

n = 30 × 2 = 60

Fv = - $1,000

YTM = ?

Using a Financial Calculator, the YTM is 6.00%

Therefore, the YTM on January 1, 1985 was 6.00%.