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31 December, 03:37

Sommers Co.'s bonds currently sell for $1,080 and have a par value of $1,000. They pay a $100 annual coupon and have a 10-year maturity, but they can be called in 5 years at $1,125. What is their yield to maturity (YTM) ?

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  1. 31 December, 07:24
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    8.8%

    Explanation:

    The fomula to calculate the yield to maturity is:

    YTM = (C + ((FV-PV) / t)) / ((FV+PV) / 2)

    C = Coupon

    FV = Face value

    PV = Present value

    t = time to reach maturity

    YTM = (100 + ((1,000-1,080) / 10)) / ((1,000+1,080) / 2)

    YTM = (100 + (-8)) / 1,040

    YTM = 92/1,040

    YTM = 0,088 * 100 = 8.8%

    Their yield to maturity (YTM) is 8.8%
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