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West Corp. issued 20-year bonds two years ago at a coupon rate of 8.9 percent. The bonds make semiannual payments. If these bonds currently sell for 110 percent of par value, what is the YTM? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Respuesta :

Answer:

YTM is 7.85%

Explanation:

Given that,

Coupon rate = 8.9%

Years = 20 years - 2 years = 18 years × 2 = 36 years

Par value or future value= $1,000

Present value = $1,000 × 110% = $1,100

Monthly payment or PMT = (8.9% × $1,000) ÷ 2 = 44.5

In semi annual payments, we multiply by 2 in years and divide by 2 in PMT as in case of YMT

So, YMT = Rate × 2 = 3.93% × 2 = 7.85%

We apply the formula in excel. Please find the attachment below:

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