Question

The Timberlake-Jackson Wardrobe Co. has 11.9 percent coupon bonds on the market with seven years left to maturity. The bonds make annual payments and have a par value of $1,000. If the bonds currently sell for $1,113.46, what is the YTM? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Yield to maturity

Answer 1

Answer:

23%

Explanation:

To find the answer, we need to use the Yield to Maturity Formula:

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

Where:

• C = Coupon value (In this case  1,000 x 11.9% = 119)
• F = Par value
• P = Market Price
• n = Years to Maturity

Now, we plug the amounts into the formula and solve:

YTM = $119 + \frac{1,000 - 1,113.46 }{7} / \frac{1,000 + 1,113.46}{2}$

YTM = 0.23

YTM = 23%