Question

when originally issued, an investment in bonds of Flushing Dough, Inc., promised to provide an annual coupon of 7.50%. The bonds have 4 years until maturity, a market price of $735, and are expected to pay all coupon on time. At maturity, however, the bonds are only forecasted to pay 84% of their par value. What is the likely yield to maturity on the bonds

Answer 1

Answer:

13.14%

Explanation:

Yield to maturity on the bonds is derived using the Ms RATE function:

Yield to maturity = RATE(nper,pmt,pv,fv)

Yield to maturity = RATE(4, 7.50%*1000, -735, 84%*1000)

Yield to maturity = 0.131435387

Yield to maturity = 13.14%

Hence, the likely yield to maturity on the bonds is 13.14%