Question

Sentry corp. bonds have an annual coupon payment of 7.25%. the bonds have a par value of $1,000, a current price of $1,125, and they will mature in 13 years. what is the yield to maturity on these bonds?

Answer 1

Yield to maturity is the total return expected on a bond if the bond is held up until the expiration of its lifetime.

To solve, the formula is:

Approx. YTM = C + F-P/n divided by F+P/2

Where:

C = Coupon Rate = 7.25%

F = Face Value = $1000

P = Price = $1,125

n = years to maturity = 13

                                                                  

Annuity Payment = 72.50

 

Solution:

Approx. YTM = 72.50 + (1000-1125/13) divided by (1125+1000/2)

Answer: 5.85%