Question

The Petit Chef Co. has 11.3 percent coupon bonds on the market with eight years left to maturity. The bonds make annual payments and have a par value of $1,000. If the bonds currently sell for $1,127.30, what is the YTM?

Answer 1

Answer:

The yield to maturity is 9.127%

Explanation:

The yield to maturity is the yield or return on the bond as a percentage of its current price in the market. The formula to calculate the yield to maturity is:

YTM = C + {(F - P) / n}  /  {(F + P) / 2}

Where,

• C is the coupon payment / interest payment on the bond
• F is the face value of the bond
• P is the current market price of the bond
• n is the years to maturity

The coupon payment = 1000 * 0.113 = 113 per year

So, YTM =  113 + {(1000 - 1127.3) / 8}  /  {(1000 + 1127.3) / 2}

YTM = 0.09127 or 9.127%