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?
1 answer:
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%
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