Question

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Watch-over-ya Securities has issued $1,000 par value bonds with 21 years maturity. The bonds pay 7.75%...

Watch-over-ya Securities has issued $1,000 par value bonds with 21 years maturity. The bonds pay 7.75% interest on an annual basis. The current market price of the bonds is $1,350. What is the yield-to-maturity of these bonds?

7.21%

2.52%

8.26%

5.02%

Solutions

Expert Solution

Compute the annual interest, using the equation as shown below:

Annual interest = Face value*Annual interest rate

                         = $1,000*7.75%

                         = $77.50

Hence, the annual interest rate is $77.50.

Compute the yield to maturity, using MS-excel as shown below:

The result of the above excel table is as follows:

Hence, the yield to maturity is 5.02%.

jeff jeffy answered 1 year ago
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