In: Finance
Yes They May, Inc. has a bond issue outstanding with a $1,000 par value and a maturity of 17 years. The bonds have an annual coupon rate of 14.0% with semi-annual coupon payments. The current market price for the bonds is $922. The bonds may be called in 4 years for 114.0% of par. What is the quoted annual yield-to-maturity for the bonds?
Quoted annual Yield to maturity (YTM) of the Bond
Variables |
Financial Calculator Keys |
Figure |
Par Value/Face Value of the Bond [$1,000] |
FV |
1,000 |
Coupon Amount [$1,000 x 14.00% x ½] |
PMT |
70 |
Market Interest Rate or Yield to maturity on the Bond |
1/Y |
? |
Maturity Period/Time to Maturity [17 Years x 2] |
N |
34 |
Bond Price [-$922] |
PV |
-922 |
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 = 7.65%.
The semi-annual Yield to maturity = 7.65%.
Therefore, the annual Yield to Maturity of the Bond = 15.30% [7.65% x 2]
“Hence, the Quoted annual Yield to maturity (YTM) of the Bond will be 15.30%”