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Bose Outfitters issued 25-year bonds two years ago at a coupon rate of 7.80 percent. If...

Bose Outfitters issued 25-year bonds two years ago at a coupon rate of 7.80 percent. If these bonds currently sell for $848, what is the YTM?

Expert Solution

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Current Price = 848

Coupon 7.80%

Maturity = 23 years

SInce the Current Price of Bond > Par Value, the TYM will be less than Coupon.

Let's assume the YTM be 9%

Value of Bond =

=

= 885.04

Now,

Let's assume the YTM be 10%

Value of Bond =

=

= 804.57

YTM =

= 9% + ((885.04 - 848) / (885.04 - 848) + (848 - 804.57)) * (10-9)

= 9% + 0.44

= 9.44%

jeff jeffy answered 2 years ago

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