In: Finance
Chimney Rock Associates has just issued a 7 percent coupon bond that has 15 years remaining till it matures. The $1,000 par value bond is currently selling for $838.79. What rate of return are the investors demanding on the bond issue, that is, what is the bond’s yield to maturity?
A. 11%
B. 9%
C. 7%
D. 6%
E. 5%
The 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 15.00%] |
PMT |
70 |
Market Interest Rate or Yield to maturity on the Bond |
1/Y |
? |
Maturity Period/Time to Maturity [15 Years] |
N |
15 |
Bond Price/Current Market Price of the Bond [-$838.79] |
PV |
-838.79 |
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 annual yield to maturity on the bond (1/Y) = 9.00%.
“Hence, the Yield to Maturity [YTM] of the Bond will be 9.00%”