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Kamila [148]
3 years ago
12

West Corp. issued 18-year bonds 2 years ago at a coupon rate of 9.5 percent. The bonds make semiannual payments. If these bonds

currently sell for 105 percent of par value, what is the YTM?
Business
1 answer:
Ira Lisetskai [31]3 years ago
4 0

Answer:

The answer is 4.232%

Explanation:

The formula for determining the price of a bond which can also be used to find Yield-to-Maturity(YTM) is:

PV = PMT/(1+r)^1 + PMT/(1+r)^2 .......PMT/(1+r)^1 PMT + FV/(1+r)^n

We are to calculate Yield-to-Maturity(YTM) which is the rate of return on the bond to an investor.

Using a Financial calculator. Input the following:

N = (18 years - 2years) x 2 = 32

1/Y = ?

PV = 109

PMT = 9.5/2 = 4.75

FV = 100

1/Y = 4.232%

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