Question

A Japanese company has a bond outstanding that sells for 105.43 percent of its ¥100,000 par value. The bond has a coupon rate of 3.4 percent paid annually and matures in 16 years. What is the yield to maturity of this bond

Answer 1

Answer:

The correct answer is 2.98% (approx.).

Explanation:

According to the scenario, the computation for the given data are as follows:

First we calculate the current value:

Current value (CV) = 100,000 × 105.43%

= 105,430

Now, Annual coupon (AC) = 100,000 × 3.4%

= 3,400

So, we can calculate the yield to maturity by using following formula:

Yield to maturity = [AC + (Face value - CV) ÷ maturity time] ÷ (Face value + CV) ÷ 2

By putting the value we get,

= [ 3,400 + (100,000 - 105,430) ÷ 16] ÷ (100,000 + 105,430) ÷ 2

= [ 3,060.625] ÷ (102,715)

= 2.98%(Approx)