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28 October, 10:18

A Japanese company has a bond outstanding that sells for 96% of its ¥100,000 par value. The bond has a coupon rate of 6.3% paid annually and matures in 19 years. What is the yield to maturity of this bond (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places.

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  1. 28 October, 12:16
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    What is the yield to maturity of this bond

    6.68%

    Explanation:

    To know the Yield to maturity of the bond, we need to calculate the Internal Rate of Return of the investment.

    We invest 96% of the price $ 96,000, and receive 19 payments of $6,300 each one, and at the end of the period the nominal value of the bond, $100,000, the result it's an internal rate of return of 6,68%

    To corroborate the result, we can calculate a Present Net Value with the 6,68% as discount rate, and the result will be $96,000, the actual price.

    YTM = 6,68%

    Investment - 96.000

    Year 1 $6,300

    Year 2 $6,300

    Year 3 $6,300

    Year 4 $6,300

    Year 5 $6,300

    Year 6 $6,300

    Year 7 $6,300

    Year 8 $6,300

    Year 9 $6,300

    Year 10 $6,300

    Year 11 $6,300

    Year 12 $6,300

    Year 13 $6,300

    Year 14 $6,300

    Year 15 $6,300

    Year 16 $6,300

    Year 17 $6,300

    Year 18 $6,300

    Year 19 $106,300
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