Bond L has a face value of $1,000 with annual interest rate of $100, matures in 15 years with rate of interest of a) 5 percent and b) 7 percent. Bond S also has a face value of $1,000 and an annual interest rate of $100, matures in 15 years with rate of interest of a) 5 percent and b) 7 percent.
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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