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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%

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  1. 5 July, 06:19
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    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%
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