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Builtrite bonds have the following5 1/2% coupon, 12 years until maturity, $1000 par and are currently...

Builtrite bonds have the following5 1/2% coupon, 12 years until maturity, $1000 par and are currently selling at $1024. If you purchase this bond, what would be your AYTM?

Solutions

Expert Solution

where C = Coupon Rate/ Interest Rate

F = Face Value

P = Maturity Price

n = Years to maturity

According to the question, C = 5 1/2 % = 5.5% = $1000 * 5.5% = $55

F = $1000

P = $1024

n = 12 years

Approx YTM = 55 + {(1000 - 1024) / 12} / (1000 + 1024)/2

= (55 - 2) / 1024

= 53 / 1012

= 0.0524

= 5.24%

Therefore, AYTM of Builtrite bond is 5.24%

jeff jeffy answered 2 years ago
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