Question

Harrimon Industries bonds have 4 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 10%. What is the yield to maturity at a current market price of $897? Round your answer to two decimal places. % $1,155? Round your answer to two decimal places.

Answer 1

Annual coupon=1000*10%=100

Hence approx YTM=[Annual coupon+(Face value-Present value)/time to maturity]/(Face value+Present value)/2

1.Approx YTM=[100+(1000-897)/4]/(1000+897)/2

which is equal to

=13.5%(Approx).

2.Approx YTM=[100+(1000-1155)/4]/(1000+1155)/2

which is equal to

=5.57%(Approx).