Question

Bond Yields (LO2] Heginbotham Corp. issued 20-year bonds two years ago at a coupon rate of 5.3 percent. The bonds make semiannual payments. If these bonds currently sell for 105 percent of par value, what is the YTM?

Answer 1

Face value $1,000 5.3% 6/12 2.65% Per period Coupon rate Remaining term Current price of stock = Face value * 105% = $1,000* 105% 18 Years 2 36 Periods $1,050 Coupon amount Face value * Coupon rate = $1,000 * 2.65% = $26.5 [Coupon amount (Maturity value - Net proceeds) Term] [0.6 Net proceeds + 0.4 *Maturity value ] [S26.5(S1,000 - S1,050) 36 ] /[0.6 * $1,050 0.4* S1,000] Cost of debt, YTM = $25.111111/$1,030 = 0.02438 2.438% 2.438 % Per period* 2 = ΥTM 4.876 % Per annum Ans YTM = 4.88 % Per annum