Heginbotham Corp. issued 20-year bonds two years ago at a coupon rate of 5.3%. The bonds...

Heginbotham Corp. issued 20-year bonds two years ago at a coupon rate of 5.3%. The bonds make semiannual payments. The face value of the bond is $1000. If these bonds currently sell for $1050, what is the yield to maturity as in APR?

Expert Solution

Yield to maturity of (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

Par Value/Face Value of the Bond [$1,000]	FV	1,000
Coupon Amount [$1,000 x 5.30% x ½]	PMT	26.50
Market Interest Rate or Yield to maturity on the Bond	1/Y	?
Maturity Period/Time to Maturity [20 Years x 2]	N	40
Bond Price [-$1,050]	PV	-1,050

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 semi-annual yield to maturity (YTM) on the bond = 2.45%.

The semi-annual Yield to maturity = 2.45%

Therefore, the annual Yield to Maturity of the Bond = 4.90% [2.45% x 2]

“Hence, the Yield to maturity of (YTM) of the Bond in APR will be 4.90%”

jeff jeffy answered 2 months ago

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