Question

Adams Enterprises’ noncallable bonds currently sell for $1,120. They have a 15-year maturity, an annual coupon of $85, and a par value of $1,000. What is their yield to maturity? 5.84% 6.15% 6.47% 6.81% 7.17%

Answer 1

Answer: 7.17%

Explanation:

Given,

YTM = ?

Annual Coupon, C = $85

Par Value, F = $1000

Current Bond Price, p = $1120

Maturity Year, n = 15

The yield to maturity is 7.17% from the data given in the question above. We will use the yield to maturity formula which stated as YTM = C + [(F-P)/n] / [(F+P)/2] where YTM is the yield to maturity,

C is the annual coupon,

F is the par value,

p is the current bond price, and

n is the maturity year.

YTM = 85 + [(1000-1120)/15] / [(1000+1120)/2]

YTM = 7.17%