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A Japanese company has a bond outstanding that sells for 96% of its ¥100,000 par value. The bond has a coupon rate of 6.3% paid annually and matures in 19 years. What is the yield to maturity of this bond (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places.

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mltn1980

Answer:

What is the yield to maturity of this bond

6.68%

Explanation:

To know the Yield to maturity of the bond, we need to calculate the Internal Rate of Return of the investment.

We invest 96% of the price $ 96,000, and receive 19 payments of $6,300 each one, and at the end of the period the nominal value of the bond,  $100,000, the result it's an internal rate of return of 6,68%

To corroborate the result, we can calculate a Present Net Value with the 6,68% as discount rate, and the result will be $96,000, the actual price.

YTM = 6,68%

Investment  -96.000  

Year 1   $6,300  

Year 2   $6,300  

Year 3   $6,300  

Year 4   $6,300  

Year 5   $6,300  

Year 6   $6,300  

Year 7   $6,300  

Year 8   $6,300  

Year 9   $6,300  

Year 10   $6,300  

Year 11   $6,300  

Year 12   $6,300  

Year 13   $6,300  

Year 14   $6,300  

Year 15   $6,300  

Year 16   $6,300  

Year 17   $6,300  

Year 18   $6,300  

Year 19   $106,300  

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