The bonds issued by Bluefish Incorporated have a 7.0 percent coupon, payable semiannually. The bonds mature...

The bonds issued by Bluefish Incorporated have a 7.0 percent coupon, payable semiannually. The bonds mature in 10 years and have a $1,000 face value. Currently, the bonds are quoted at 98.9 (thus sell for $989). What is the yield to maturity? (Ch7)

a. 4.24% b. 3.97% c. 5.08% d. 6.14% e. 7.16%

Solutions

Expert Solution

YTM is the rate at which PV of Cash Inflows are equal to bond price.

YTM = rate at which least +ve NPV + [ NPV at that rate /.change in NPV due to 0.5% inc in Yield ] * 0.5%

= 3.5% + [ 11 / 67.95 ] * 0.5%

= 3.5% + 0.08%

= 3.58%

YTM per anum = 3.58% * 12 / 6

= 7.16%

OPtion e is correct.

jeff jeffy answered 7 months ago

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