The bond has a face value of $1,000 with a coupon rate of 9% paid semi-annually. Also, the bond will mature in next 8 years with a required return of 4%.
Bonds are issued to raise funds for the company. The important characteristic of a bond is that it has a maturity value which is the value the bondholders will get at the end of the maturity period. Also, some bonds carry coupon rate which means the bondholders will get a regular interest cash flow on that bond.
The yield to maturity (YTM) of the bond is the required
Where,
INT = coupon payments made
N = number of periods
M = Maturity or Face value
rd = rate of return
Vd = Value of the bond
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- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT