Answered: What is the YTM of the bond given the…

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 3EB: Smashing Cantaloupes Inc. issued 5-year bonds with a par value of $35,000 and an 8% semiannual...

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What is the YTM of the bond given the information below. The bond makes annual interest payments. (Do not round intermediate calculations, round answer to two decimals, i.e. 32.16)

Coupon Rate:8.4%

Maturity (years):6

Current Price: $1,159.63

Par value: $1,000.00

Expert Solution

Step 1 Formula

YTM measures the actual return you will get if you hold bond till maturity. It consider the price at which you invested. Because, you won't receive principal amount of your investment, which is $1059.63. You will reccive only coupon and face value at maturity.

YTM can be calculated by using this formula

YTM =

[C+ (Face value- price)/ Period to maturity]/(face value+price)/2

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