Question

Harrimon Industries bonds have 5 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 9%. What is the yield to maturity at a current market price of $811

Answer 1

Answer:

14.58%

Explanation:

The yield to maturity is the same as the Internal Rate of Return of an Investment. YTM is the interest rate that will make the present value of cash flows equal to the initial investment :

Calculated as :

N = 5

Fv = $1,000

Pmt = $1,000 × 9% = $90

Pv = - $811

P/yr = 1

i (YTM) = ?

Using a financial calculator to enter the values as above, the yield to maturity (YTM) is 14.5825 % or 14.58%.