Question

Find the average YTM on the following bonds: Jesse Corp.'s Bond: A 16-year, 4.4 percent coupon bond has a face value of $1,000. It pays interest annually. Current price is $570.50 Brady Inc.'s Bond: A-17 year bond with a coupon payment of $87 and a face value of $1,000. Interest is paid semiannually. Current price is $776.00 Do not round up/down your answer. (Hint: Find both yields and calculate the average)

Answer 1

Jesse bond

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =16

570.5 =∑ [(4.4*1000/100)/(1 + YTM/100)^k]     +   1000/(1 + YTM/100)^16

k=1

YTM% = 9.84

Brady bond

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =17x2

776 =∑ [(8.7*1000/200)/(1 + YTM/200)^k]     +   1000/(1 + YTM/200)^17x2

k=1

11.78%