Question

In: Finance

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%


Related Solutions

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 $1,000 and a price of $865. The bonds will mature in 11 years. What is the yield to maturity on the bonds?
Edgehill, Inc. has 275,000 bonds outstanding. The bonds have a par value of $1,000, a coupon...
Edgehill, Inc. has 275,000 bonds outstanding. The bonds have a par value of $1,000, a coupon rate of 5.2 percent paid semiannually, and 9 years to maturity. The current YTM on the bonds is 5.6 percent. The company also has 10 million shares of stock outstanding, with a market price of $21 per share. What is the company’s market value debt-equity ratio? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)
Frusciante, Inc. has 285,000 bonds outstanding. The bonds have a par value of $1,000, a coupon...
Frusciante, Inc. has 285,000 bonds outstanding. The bonds have a par value of $1,000, a coupon rate of 6.9 percent paid semiannually, and 7 years to maturity. The current YTM on the bonds is 6.4 percent. The company also has 9 million shares of stock outstanding, with a market price of $27 per share. What is the company’s market value debt–equity ratio?
Dooley, Inc., has outstanding $150 million (par value) bonds that pay an annual coupon rate of...
Dooley, Inc., has outstanding $150 million (par value) bonds that pay an annual coupon rate of interest of 9.5 percent. Par value of each bond is $1,000. The bonds are scheduled to mature in 17 years. Because of Dooley’s increased risk, investors now require a 13 percent rate of return on bonds of similar quality with 17 years remaining until maturity. The bonds are callable at 108 percent of par at the end of 12 years. Use calculator to find...
Nesmith Corporation's outstanding bonds have a $1,000 par value, a 8% semiannual coupon, 8 years to...
Nesmith Corporation's outstanding bonds have a $1,000 par value, a 8% semiannual coupon, 8 years to maturity, and an 10% YTM. What is the bond's price? Round your answer to the nearest cent.
Palmer Products has an outstanding bonds with an annual 8 percent coupon. The bonds have a...
Palmer Products has an outstanding bonds with an annual 8 percent coupon. The bonds have a per value of $1000 and a price of $865. The bonds will mature in 11 years. What is the maturity on the bonds? Gertrude Carter and Co. has an outstanding loan that calls for equal annual payments over the 10 year life of the loan. The original loan amount was $100,000.00 at a interest rate of 6 percent. How much of the third payment...
(Bond valuation​) Bellingham bonds have an annual coupon rate of 8 percent and a par value...
(Bond valuation​) Bellingham bonds have an annual coupon rate of 8 percent and a par value of $ 1 comma 000 and will mature in 20 years. If you require a return of 15 ​percent, what price would you be willing to pay for the​ bond? What happens if you pay more for the​ bond? What happens if you pay less for the​ bond?
Nesmith Corporation's outstanding bonds have a $1,000 par value, an 8% semiannual coupon, 18 years to...
Nesmith Corporation's outstanding bonds have a $1,000 par value, an 8% semiannual coupon, 18 years to maturity, and a 10% YTM. What is the bond's price? Round your answer to the nearest cent.
Nesmith Corporation's outstanding bonds have a $1,000 par value, an 8% semiannual coupon, 15 years to...
Nesmith Corporation's outstanding bonds have a $1,000 par value, an 8% semiannual coupon, 15 years to maturity, and a 12% YTM. What is the bond's price? Round your answer to the nearest cent.
Bond valuation Nesmith Corporation's outstanding bonds have a $1,000 par value, a 8% semiannual coupon, 7...
Bond valuation Nesmith Corporation's outstanding bonds have a $1,000 par value, a 8% semiannual coupon, 7 years to maturity, and an 9% YTM. What is the bond's price? Round your answer to the nearest cent. $ ______________
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT