West Corp. issued 25-year bonds two years ago at a coupon rate of 5.3 percent. The...

West Corp. issued 25-year bonds two years ago at a coupon rate of 5.3 percent. The bonds make semiannual payments. If these bonds currently sell for 105 percent of par value, what is the YTM? Please show work/steps and formula used ( do not solely use calculator to show work). Thank you

Expert Solution

YTM is the rate at which PV of Cash Inflows are equal to Bond Price.

Period	CF	PVF @2%	Dsic CF	PVF @2.5%	Disc CF
0	$ -1,050.00	1.0000	$ -1,050.00	1.0000	$ -1,050.00
1-46	$ 26.50	29.8923	$ 792.15	27.1542	$ 719.59
46	$ 1,000.00	0.4022	$ 402.20	0.3211	$ 321.10
NPV			$ 144.35		$ -9.31

YTM per 6 Months = Rate at which least +ve NPV + [ NPV at that Rate / Change in In NPV due to 0.5% inc in disc Rate ] * 0.5%

= 2% + [ 144.34 / 153.66 ] * 0.5%

= 2 % + [ 0.94 * 0.5% ]

= 2% +0.47%

= 2.47%

YTM per anum = YTM per 6 Months * 2

= 2.47% * 2

= 4.94%

jeff jeffy answered 1 month ago

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