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Zielflug [23.3K]
3 years ago
9

South Carolina Industrial Products' bonds have a 7.00 percent coupon and pay interest annually. The face value is $1,000 and the

current market price is $1,062.50 per bond. The bonds mature in 16 years. What is the yield to maturity
Business
1 answer:
skelet666 [1.2K]3 years ago
3 0

Answer:

YTM = 0.06409 or 6.409% rounded off to 6.41%

Explanation:

The YTM or yield to maturity is the yield or return that the bond will provide if it is purchased today and held till maturity. The formula to calculate the YTM will be,

YTM = [ (C + (F - P)/n)  /  ((F + P)/2) ]

Where,

  • C is the coupon payment
  • F is the face value of the bond
  • P is the current value
  • n is the number of years to maturity

Coupon = 1000 * 0.07 = 70

YTM =  [ (70 + (1000 - 1062.50)/16)  /  ((1000 + 1062.50)/2) ]

YTM = 0.06409 or 6.409% rounded off to 6.41%

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