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Eastern Corporation has $1,000 par value bonds with 4 years to maturity. The bonds pay an 8% coupon rate with semi-annual coupon interest payments. The bond's closing price is quoted at 101.25. Suppose you purchase the bond for the closing price. What is the bond's yield to maturity?

Respuesta :

Answer:

7.64%

Explanation:

For computing the yield to maturity we have to applied the RATE formula i.e to be shown in the attachment

Given that,  

Present value = $1,000 × 101.25 = $1,012.50

Future value or Face value = $1,000  

PMT = 1,000 × 8% ÷ 2 = $40

NPER = 4 years × 2 = 8 years

The formula is shown below:  

= Rate(NPER;PMT;-PV;FV;type)  

The present value come in negative  

So, after applying the above formula,

The yield to maturity is

= 3.82% × 2

= 7.64%

Ver imagen andromache

The bond's yield to maturity:

Given Information,  

  • Present value = $1,000 × 101.25 = $1,012.50
  • Future value or Face value = $1,000  
  • PMT = 1,000 × 8% ÷ 2 = $40
  • NPER = 4 years × 2 = 8 years

 

Yield to maturity = 3.82% × 2

Yield to maturity= 7.64%

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