Fundamentals of Financial Manageme...
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Fundamentals of Financial Manageme...
YIELD TO MATURITY A firm’s bonds have a maturity of 10 years with a 51,000 face value, have an 8% semiannual coupon, are callable in 5 years at $1,050, and currently sell at a price of $1,100. What are their nominal yield to maturity and their nominal yield to call? What return should investors expect to earn on these bonds?
To determine: Yield to maturity (YTM).
Yield to Maturity: Yield to maturity refers to the rate of interest earned till the maturity of the bond by the bond holder.
Given,
Semiannual coupon rate is 8%.
Selling price (value of bond) is $1,100.
Par value of bond is $1,000.
Maturity is after 10 years.
Yield to maturity (YTM) can be calculated through value of bond.
Formula to calculate present value of bond,
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