The 12-year, $1,000 par value bonds of Waco Industries pay 12 percent interest annually. The market price of the bond is $1,135, and the market's required yield to maturity on a comparable-risk bond is 9 percent. Compute the bond's yield to maturity.
1. Determine the value of the bond to you given the market's required yield to maturity on a comparable-risk bond.
Face Value of Bond = $1000
Annual Coupon Payment = $1000*12% = $120
No of years to maturity = 12 years
a). Current Market Price of Bond = $1135
Calculating the Yield to Maturity of Bond using Excel "RATE" Function:-
So,the Yield to Maturity(YTM) of Bond is 10.02%
b). Market Yield to Maturity on comparable bond is 9%
Calculating the Price of Bond using excel "PV" function:-
So, Price of Bond based on Market Yield to Maturity on comparable bond is $1,214.82