Question

Radoski Corporation's bonds make an annual coupon interest payment of 7.35% every year. The bonds have a par value of $1,000, a current price of $920, and mature in 12 years. What is the yield to maturity on these bonds

Answer 1

Answer:

YTM = 0.6940%

Explanation:

THe Yield to Maturity (YTM) is the return that you expect from the bond if you held the bond till maturity.

The formula would go as:

YTM = $\frac{F}{P}^{\frac{1}{n}} -1$

Where

F is the face value, or par value

P is the current price

n is the time period, maturity period

Given,

F = 1000

P = 920

n = 12, we have:

YTM = $\frac{F}{P}^{\frac{1}{n}} -1 = \frac{1000}{920}^{\frac{1}{12}} -1=0.006972$

Thus, the yield to maturity would be:

YTM = 0.6940%