5ms noncallable bonds currently sell for $1,120. they have a 15 year maturity, an annual coupon of $85, an a par value of $1000. what is their yield-to-maturity

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Gwendolyn Bean

27 December, 01:03

5ms noncallable bonds currently sell for $1,120. they have a 15 year maturity, an annual coupon of $85, an a par value of $1000. what is their yield-to-maturity

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Giuliana · Answer 1

Yield to maturity is 7.168%

Explanation:

The actual return that an investor earn on a bond until its maturity is called the Yield to maturity. It is a long term return which is expressed in annual rate.

We will use the following formula to calculate the Yield to maturity.

Value of Bond = C x (1 - (1 + YTM) ^-n / YTM) + F / (1 + YTM) ^n

$1,120 = $85 x (1 - (1 + YTM) ^-15 / YTM) + $1,000 / (1 + YTM) ^15

YTM = 0.07168 = 7.168%