A(n) 18-year bond for Rusk Corporation has a market price of $ 750 and a par...
A(n) 18-year bond for Rusk Corporation has a market price of $ 750 and a par value of $ 1 comma 000. If the bond has an annual interest rate of 9 percent, but pays interest semiannually, what is the bond's yield to maturity?
Homework Answers
The calculation of YTM is shown below:
YTM = [coupon + (par value - Current price)/n]/(par value+ Current price)/2
= [$1,000*9%*1/2+ ($1,000 - $750)36]/($1,000+$750)/2
= ($51.94/$875)
= 5.94%
Annual yield = 5.94% * 2 = 11.88%
YTM found by formula varies by small percentage as compared to YTM found by calculator.
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