The bonds issued by Jensen & Son have a 6.4% coupon rate, payable quarterly. The bonds,...

The bonds issued by Jensen & Son have a 6.4% coupon rate, payable quarterly. The bonds, which mature in 18 years, have a $10,000 par value and they currently sell for $13,242.55 per bond. What is the yield to maturity of these bonds?

Solutions

Expert Solution

Calculation of Yield to Maturity (YTM) of the Bond

The Yield to maturity of (YTM) of the Bond is calculated using financial calculator as follows (Normally, the YTM is calculated either using EXCEL Functions or by using Financial Calculator)


Variables	Financial Calculator Keys	Figure

Face Value [$10, 000]	FV	10,000
Coupon Amount [$10000 x 6.4%x1/4]	PMT	160
Yield to Maturity [YTM]	1/Y	?
Time to Maturity [18 Years x 4]	N	72
Bond Price	PV	-13,242.55

We need to set the above figures into the financial calculator to find out the Yield to Maturity of the Bond. After entering the above keys in the financial calculator, we get the yield to maturity (YTM) on the bond =. 9725%

The Quarter Yield to maturity =. 9725

Therefore, the annual Yield to Maturity =. 9725*4 =3.89

“Hence, the Yield to Maturity (YTM) of the Bond will be 3.89%

jeff jeffy answered 2 weeks ago

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