Question

Suppose the following bond quote for IOU Corporation appears in the financial page of today’s newspaper. Assume the bond has a face value of $1,000, and the current date is April 15, 2016.

Company (Ticker)	Coupon	Maturity	Last Price	Last Yield	EST Vol (000s)
IOU (IOU)	10.15	Apr 15, 2029	91.605	??	1,834

What is the yield to maturity of the bond? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Yield to maturity _____?

Answer 1

Yield to Maturity [YTM] of the Bond

Yield to Maturity [YTM] = Coupon Amount + [(Par Value – Bond Price) / Maturity Years] / [(Par Value + Bond Price)/2]

Par Value = $1,000

Coupon Amount = $101.50 [$1,000 x 10.15%]

Bond Price = $916.05 [$1,000 x 91.605%]

Maturity Years = 13 Years [April 15, 2016 to Apr 15, 2029]

Therefore, Yield to Maturity [YTM] = Coupon Amount + [(Par Value – Bond Price) / Maturity Years] / [(Par Value + Bond Price)/2]

= $101.50 + [($1,000 – $916.05) / 13 Years)] / [($1,000 + $916.05) / 2]

= [($101.50 + $6.46) / $958.03]

= 0.1142

= 11.42%

“Therefore, The Yield to Maturity [YTM] of the Bond = 11.42%”