The ABC Wardrobe Co. has 10.7 percent coupon bonds on the market with eleven years left...

The ABC Wardrobe Co. has 10.7 percent coupon bonds on the market with eleven years left to maturity. The bonds make semiannual payments and have a par value of $1000. If the bonds currently sell for $1,161.06, what is the YTM

Expert Solution

Yield to maturity of (YTM) of the Bond

The Yield to maturity of (YTM) of the Bond is calculated using financial calculator as follows (Normally, the YTM is calculated either using EXCEL Functions or by using Financial Calculator)


Variables	Financial Calculator Keys	Figure

Face Value [$1,000]	FV	1,000
Coupon Amount [$1,000 x 10.70% x ½]	PMT	53.50
Yield to Maturity [YTM]	1/Y	?
Time to Maturity [11 Years x 2]	N	22
Bond Price [-$1,161.06]	PV	-1,161.06

We need to set the above figures into the financial calculator to find out the Yield to Maturity of the Bond. After entering the above keys in the financial calculator, we get the semi-annual yield to maturity (YTM) on the bond = 4.215%

The semi-annual Yield to maturity = 4.215%

Therefore, the annual Yield to Maturity = 8.43% [4.215% x 2]

“Hence, the Yield to maturity of (YTM) of the Bond will be 8.43%”

jeff jeffy answered 11 months ago

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