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 3 months ago
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