A few years ago, Spider Web, Inc. issued bonds with a 12.17 percent annual coupon rate,...

A few years ago, Spider Web, Inc. issued bonds with a 12.17 percent annual coupon rate, paid semiannually. The bonds have a par value of $1,000, a current price of $943, and will mature in 14 years. What would the annual yield to maturity be on the bond if you purchased the bond today? Round the answer to two decimal places in percentage form.

Expert Solution

YTM :
YTM is the rate at which PV of Cash inflows are equal to Bond price when the bond is held till maturity.

YTM = [ Rate at which least +ve NPV + [ NPV at that Rate / Change in NPV due to 0.5% inc in disc rate ] * 0.5% ] * 2

Period	CF	PVF @6.5%	Disc Cf	PVF @7%	Disc CF
0	$ -943.00	1.0000	$ -943.00	1.0000	$ -943.00
1	$ 60.85	0.9390	$ 57.14	0.9346	$ 56.87
2	$ 60.85	0.8817	$ 53.65	0.8734	$ 53.15
3	$ 60.85	0.8278	$ 50.37	0.8163	$ 49.67
4	$ 60.85	0.7773	$ 47.30	0.7629	$ 46.42
5	$ 60.85	0.7299	$ 44.41	0.7130	$ 43.39
6	$ 60.85	0.6853	$ 41.70	0.6663	$ 40.55
7	$ 60.85	0.6435	$ 39.16	0.6227	$ 37.89
8	$ 60.85	0.6042	$ 36.77	0.5820	$ 35.42
9	$ 60.85	0.5674	$ 34.52	0.5439	$ 33.10
10	$ 60.85	0.5327	$ 32.42	0.5083	$ 30.93
11	$ 60.85	0.5002	$ 30.44	0.4751	$ 28.91
12	$ 60.85	0.4697	$ 28.58	0.4440	$ 27.02
13	$ 60.85	0.4410	$ 26.84	0.4150	$ 25.25
14	$ 60.85	0.4141	$ 25.20	0.3878	$ 23.60
15	$ 60.85	0.3888	$ 23.66	0.3624	$ 22.05
16	$ 60.85	0.3651	$ 22.22	0.3387	$ 20.61
17	$ 60.85	0.3428	$ 20.86	0.3166	$ 19.26
18	$ 60.85	0.3219	$ 19.59	0.2959	$ 18.00
19	$ 60.85	0.3022	$ 18.39	0.2765	$ 16.83
20	$ 60.85	0.2838	$ 17.27	0.2584	$ 15.72
21	$ 60.85	0.2665	$ 16.22	0.2415	$ 14.70
22	$ 60.85	0.2502	$ 15.23	0.2257	$ 13.73
23	$ 60.85	0.2349	$ 14.30	0.2109	$ 12.84
24	$ 60.85	0.2206	$ 13.42	0.1971	$ 12.00
25	$ 60.85	0.2071	$ 12.60	0.1842	$ 11.21
26	$ 60.85	0.1945	$ 11.84	0.1722	$ 10.48
27	$ 60.85	0.1826	$ 11.11	0.1609	$ 9.79
28	$ 60.85	0.1715	$ 10.43	0.1504	$ 9.15
28	$ 1,000.00	0.1715	$ 171.48	0.1504	$ 150.40
NPV	$ 4.10		$ -54.05

YTM = [ Rate at which least +ve NPV + [ NPV at that Rate / Change in NPV due to 0.5% inc in disc rate ] * 0.5% ] * 2

= [ 6.5% + [ 4.10 / 58.16 ] * 0.5% ] * 2

= [ 6.5% + [ 0.07 * 0.5% ] ] * 2

= [ 6.5% + 0.035% ] * 2

= 6.535% * 2

= 13.07%

Pls do rate, if the answer is correct and comment, if any further assistance is required.

jeff jeffy answered 1 year ago

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