Question

Heginbotham Corp. issued 15-year bonds two years ago at a coupon rate of 8.8 percent. The bonds make semiannual payments. If these bonds currently sell for 109 percent of par value, what is the YTM?

Answer 1

Face Value = $1,000

Current Price = 109% * Face Value
Current Price = 109% * $1,000
Current Price = $1,090

Annual Coupon Rate = 8.80%
Semiannual Coupon Rate = 4.40%
Semiannual Coupon = 4.40% * $1,000
Semiannual Coupon = $44

Time to Maturity = 13 years
Semiannual Period = 26

Let Semiannual YTM be i%

$1,090 = $44 * PVIFA(i%, 26) + $1,000 * PVIF(i%, 26)

Using financial calculator:
N = 26
PV = -1090
PMT = 44
FV = 1000

I = 3.846%

Semiannual YTM = 3.846%
Annual YTM = 2 * 3.846%
Annual YTM = 7.692% or 7.69%

So, yield to maturity is 7.69%