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PP Inc. has outstanding bonds with an annual 8% coupon. The bonds have a par value...

PP Inc. has outstanding bonds with an annual 8% coupon. The bonds have a par value of $1000 and a price of $865. The bond will mature in 11 years. What is the yield to maturity on the bonds?

Please show all workings. Do not Calculate using Excel

Solutions

Expert Solution

The Approximate Yield to Maturity Formula =[Coupon + ( Face Value - Market Price) / Number of years to maturity] / [( Face Value + Market Price)/2 ] *100

= [$ 80+ ( $ 1,000- $865) /11] /[( $ 1,000+ $ 865)/2] *100

= 92.27272727/932.50*100

= 9.89%

Note : Coupon = Rate * Face Value

= 8%* $ 1,000

= $ 80

Since this formula gives an approximate value, The financial calculators can be used alternatively.

where,

Par Value = $ 1,000

Market Price = $ 865

Annual rate = 8% and

Maturity in Years = 11 Years

Hence the yield to maturity = 10.09%

Answer = 10.09%

jeff jeffy answered 2 years ago
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