Question

In: Finance

The Pioneer Petroleum Corporation has a bond outstanding with an $90 annual interest payment, a market...

The Pioneer Petroleum Corporation has a bond outstanding with an $90 annual interest payment, a market price of $910, and a maturity date in five years. Assume the par value of the bond is $1,000.

Find the following: (Use the approximation formula to compute the approximate yield to maturity and use the calculator method to compute the exact yield to maturity. Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.)


a.	Coupon rate	%
b.	Current yield	%
c-1.	Approximate yield to maturity	%
c-2.	Exact yield to maturity	%

Expert Solution

a.

Coupon rate = Annual interest / Face value

Coupon rate = $90 / $1000

Coupon rate = 9.00%.

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b.

Current yield = Annual interest / Current Price

Current yield = $90/ $910

Current yield = 9.89%.

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c.

Approximate YTM=(Annual interest+((Face value - current price)/No. years)/(Face value + Current price)/No. years

Approximate YTM = (90+((1000-910)/5) / ((1000+910)/5)

Approximate YTM =(90 +18) /955

Approximate YTM = 11.31%.

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d.

Calculate the Exact YTM as follows:

Therefore, the exact YTM is 11.46%.

jeff jeffy answered 8 months ago

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