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7 July, 08:56

Sentry corp. bonds have an annual coupon payment of 7.25%. the bonds have a par value of $1,000, a current price of $1,125, and they will mature in 13 years. what is the yield to maturity on these bonds?

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  1. 7 July, 12:00
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    Yield to maturity is the total return expected on a bond if the bond is held up until the expiration of its lifetime.

    To solve, the formula is:

    Approx. YTM = C + F-P/n divided by F+P/2

    Where:

    C = Coupon Rate = 7.25%

    F = Face Value = $1000

    P = Price = $1,125

    n = years to maturity = 13

    Annuity Payment = 72.50

    Solution:

    Approx. YTM = 72.50 + (1000-1125/13) divided by (1125+1000/2)

    Answer: 5.85%
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