Radoski Corporation's bonds make an annual coupon interest payment of 7.35%. The bonds have a par value of $1,000, a current price of $1,130, and mature in 12 years. What is the yield to maturity on these bonds? 5.52% 5.82% 6.11% 6.41% 6.73%

Question

Business

Katrina Burnett

5 July, 04:14

Radoski Corporation's bonds make an annual coupon interest payment of 7.35%. The bonds have a par value of $1,000, a current price of $1,130, and mature in 12 years. What is the yield to maturity on these bonds? 5.52% 5.82% 6.11% 6.41% 6.73%

+2

Answers (1)

Know the Answer?

Kinsley Simon · Answer 1

5.82%

Explanation:

Yield to maturity is the annual rate of return that an investor receives if a bond bond is held until the maturity.

Face value = F = $1,000

Assuming Coupon payments are made annually

Coupon payment = $1,000 x 7.35% = $73.5

Selling price = P = $1,130

Number of payment = n = 12 years

Yield to maturity = [ C + (F - P) / n ] / [ (F + P) / 2 ]

Yield to maturity = [ $73.5 + ($1,000 - $1,130) / 12 ] / [ ($1,000 + $1,130) / 2 ]

Yield to maturity = [ $73.5 - 10.83 ] / $1,065 = $62.67 / 1,065 = 0.0588 = 5.88%