Question
In: Finance
Stilley Resources bonds have 20 years left to maturity. Interest is paid annually, and the bonds...
Stilley Resources bonds have 20 years left to maturity. Interest
is paid annually, and the bonds have a $1,000 par value and a
coupon rate of 21.5 percent.
Compute If the price of the bond is $1,330, what is the yield to
maturity? (Do not round intermediate calculations. Input
your answer as a percent rounded to 2 decimal places.)
| Yield to maturity | % |
Solutions
Expert Solution
| Par/Face value | 1000 | |||||||||||||||||||
| Annual Coupon rate | 0.215 | |||||||||||||||||||
| Annual coupon | 215 | |||||||||||||||||||
| Present Value = Future value/ ((1+r)^t) | ||||||||||||||||||||
| where r is the interest rate and t is the time period | ||||||||||||||||||||
| price of the bond = sum of present values of future cash flows | ||||||||||||||||||||
| Price of the bond | 1330 | |||||||||||||||||||
| Use excel to find r | ||||||||||||||||||||
| r | 0.1595 | |||||||||||||||||||
| mt | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 |
| future cash flow | 215 | 215 | 215 | 215 | 215 | 215 | 215 | 215 | 215 | 215 | 215 | 215 | 215 | 215 | 215 | 215 | 215 | 215 | 215 | 1215 |
| present value | 185.4248 | 159.9179 | 137.9197 | 118.9475 | 102.5852 | 88.47365 | 76.30328 | 65.80705 | 56.75468 | 48.94755 | 42.21436 | 36.40738 | 31.39921 | 27.07995 | 23.35485 | 20.14218 | 17.37143 | 14.98183 | 12.92094 | 62.97399 |
| sum of present values | 1330 | |||||||||||||||||||
| Yield to maturity | 15.95% | |||||||||||||||||||
jeff jeffy answered 10 months agoRelated Solutions
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