Question
In: Finance
Abner Corporation's bonds mature in 17 years and pay 11 percent interest annually. If you purchase...
Abner Corporation's bonds mature in 17 years and pay 11 percent interest annually. If you purchase the bonds for $850, what is your yield to maturity?
Solutions
Expert Solution
YTM = 13.26%
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Yield to maturity is the rate of return the investor will get if he/she hold the bold till maturity period
So YTM is like internal rate of return, if we discount all the cash inflow from the bond using YTM, the present value will be equal to the bond current price.
YTM is calculated using Excel, the function used is (IRR)
Pls refer below table
|
Year |
Cash flow |
Amount |
|
0 |
Bod price (Outflow) |
-850 |
|
1 |
Coupon (Inflow) |
110 |
|
2 |
Coupon (Inflow) |
110 |
|
3 |
Coupon (Inflow) |
110 |
|
4 |
Coupon (Inflow) |
110 |
|
5 |
Coupon (Inflow) |
110 |
|
6 |
Coupon (Inflow) |
110 |
|
7 |
Coupon (Inflow) |
110 |
|
8 |
Coupon (Inflow) |
110 |
|
9 |
Coupon (Inflow) |
110 |
|
10 |
Coupon (Inflow) |
110 |
|
11 |
Coupon (Inflow) |
110 |
|
12 |
Coupon (Inflow) |
110 |
|
13 |
Coupon (Inflow) |
110 |
|
14 |
Coupon (Inflow) |
110 |
|
15 |
Coupon (Inflow) |
110 |
|
16 |
Coupon (Inflow) |
110 |
|
17 |
Par + Coupon (Inflow) |
1110 |
|
YTM |
13.26% |
|
|
Formula |
=IRR(G44:G64) |
YTM = 13.26%
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Feel free to comment if you need further assistance J
Pls rate this answer if you found it useful.
jeff jeffy answered 2 months agoRelated Solutions
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